Tag: public debt

Pakistan’s debt burden increases by Rs86.28 billion within seven days

In the week ending January 12, the government of Pakistan increased its debt burden by Rs86.28 billion, bringing the total net borrowing for the ongoing fiscal year 2024 to Rs2.57 trillion, as per the latest estimates from the State Bank of Pakistan (SBP).

The government’s borrowings fall into three main categories: budgetary support, commodity operations, and others.

The breakdown of the weekly net borrowing reveals that Rs87.7 billion was allocated for budgetary support, while Rs1.37 billion went towards retiring commodity operations.

Additionally, Rs48.4 million was used for other purposes during the week.

Cumulatively, this brings the borrowing figures for the fiscal year 2024 to Rs2.77 trillion for budgetary support, Rs193.72 billion for retiring commodity operations, and Rs1.1 billion for other purposes.

The primary sources of financing for budgetary support are the State Bank of Pakistan and the Scheduled Banks. In the ongoing fiscal year, the government has repaid a net sum of Rs1.05 trillion to the central bank.

The Federal Government accounted for Rs954.56 billion of this repayment, while the Provincial Government, AJK Government, and GB Government contributed Rs77.73 billion, Rs11.17 billion, and Rs2.05 billion, respectively.

On the other hand, scheduled banks have extended a net total of Rs3.81 trillion in loans. The Federal Government borrowed Rs3.9 trillion, while the Provincial Government repaid Rs90.41 billion during this period.

January 25, 2024
IMF forecasts improved inflation, slower economic growth for Pakistan in FY24

The International Monetary Fund (IMF) has adjusted its economic projections for Pakistan, providing a comprehensive review in its latest report. The key highlights include a downward revision of inflation forecasts and a moderated economic growth projection for the fiscal year 2024 (FY24).

According to the IMF’s first review report, the inflation forecast for Pakistan has been revised down to an average of 24 per cent in FY24, showing a decline from the earlier projection of 25.9 per cent.

This adjustment is attributed to the easing of food and energy prices, although the November gas tariff increase is expected to contribute to headline inflation in the coming months. Despite this, gradual declines are anticipated due to lower core inflation and recent movements in commodity prices.

The year-end inflation is projected to be 18.5 per cent in FY24 and further decrease to 9 per cent in FY25, as outlined in the report.

Conversely, the IMF has lowered its economic growth projection for Pakistan to 2 per cent in FY24, down from the initial estimate of 2.5 per cent. The revision reflects weaker domestic demand despite positive base effects from flood recovery, particularly in agriculture and the textile sector.

The report emphasised that continued external challenges, along with tight fiscal and monetary policies, are expected to dampen consumption and private investment.

The current account deficit (CAD) for FY24 is forecasted at $5.6 billion (1.6 per cent of GDP), below the previously projected $6.5 billion in the SBA Request. The import rebound is expected to be more restrained due to weakened domestic demand, while exports and remittances are also anticipated to be subdued.

IMF staff anticipates the CAD to remain around 1.5 per cent of GDP over the medium term, reflecting efforts to rebuild reserves and a market-determined exchange rate consistent with sustainability.

Despite a notable improvement in market sentiment since June, the IMF pointed out that risks to debt sustainability remain acute. Large gross financing needs and limited external financing pose challenges, and the global lender stressed that any policy slippages or insufficient financing could jeopardise the path to debt sustainability.

Furthermore, the IMF highlighted that external financing risks are exceptionally high, and delays in the disbursement of planned financing from international financial institutions or bilateral partners could pose significant threats to the government’s programme, given limited buffers. This could lead to an increased reliance on expensive domestic financing, potentially crowding out private credit.

In addition to economic concerns, the IMF warned that political tensions ahead of the upcoming elections may impact policy decisions and reform implementation, adding another layer of uncertainty to Pakistan’s economic outlook.

The IMF concluded that while public debt could remain sustainable with decisive programme implementation and adequate financing, downside risks remain exceptionally high for the country, necessitating careful attention to policy measures and external support.

January 21, 2024
PDM govt adds Rs18.5 trillion to Pakistan’s debt in just 15 months

In a span of just 15 months, the Pakistan Democratic Movement (PDM) government has significantly added Rs18.5 trillion to the country’s public debt, a striking amount surpassing the debt accumulation of its rival, the Pakistan Tehreek-e-Insaf (PTI), during its three-and-a-half-year tenure.

Between March 2022 and the close of the 2022–23 fiscal year, the gross public debt surged from Rs44.4 trillion to Rs62.9 trillion. This rapid increase of 41.7 per cent in just 15 months occurred without a well-defined strategy to curb it. As a result, the federal government’s debt, for which the finance ministry bears direct responsibility, escalated to Rs60.8 trillion by June 2023. The debt bulletin, published on a recent Wednesday, indicates an addition of Rs18 trillion during the PDM government’s one year and three months in power.

As per a report in the Express Tribune by Shehbaz Rana, this unsustainable surge in public debt is mainly ascribed to unregulated spending, insufficient revenue collection from areas such as real estate, services, and agriculture, alongside the diminishing value of the Pakistani rupee in comparison to the US dollar.

It’s worth noting that the government under Imran Khan added Rs18.1 trillion to the public debt over a span of 44 months, a threshold that the current administration led by Shehbaz Sharif managed to surpass in just 15 months. However, it’s important to mention that the debt figure for July has yet to be compiled by the State Bank of Pakistan.

This trend becomes even more significant when we consider that the combined debt addition by the Pakistan Peoples Party (PPP) and the Pakistan Muslim League-Nawaz (PML-N) from 2008 to 2018 was Rs18 trillion. Another Rs18 trillion was added from August 2018 to March 2022 during Imran Khan’s government, and now the PDM government has contributed an additional Rs18.5 trillion in a remarkably brief period of 15 months.

Comparatively, from September 1, 2018, to the end of March 2022, the PTI government, on average, increased the public debt by Rs14.5 billion per day, more than double the average daily increase of Rs5.6 billion during the PML-N period. The PDM government has further escalated this daily addition to an average of Rs41 billion.

By the time the PTI government’s term concluded, the total public debt amounted to Rs44.4 trillion, equivalent to 83.5 per cent of the gross domestic product (GDP) before the economy’s rebasing. Following the rebasing process, there was a 15 per cent reduction in public debt relative to GDP but no reduction in absolute terms.

At present, the public debt constitutes 74.3 per cent of the GDP. Steep currency depreciation has also contributed to the federal government’s debt. Over the past 15 months, the total domestic debt of the federal government surged to Rs38.8 trillion, an addition of Rs10.8 trillion (or 38 per cent). When Imran Khan left office, the domestic debt stood at Rs28 trillion.

Alarmingly, the external debt of the federal government surged by 48 per cent to Rs22 trillion within just 15 months, with a net increase of Rs7.1 trillion attributed largely to currency depreciation. By the end of March 2022, the external debt, excluding IMF liabilities, was Rs14.9 trillion.

External debt constitutes roughly 36 per cent of the total debt, and fluctuations in the exchange rate have a significant impact on debt even without borrowing additional funds. In a span of 15 months, the rupee-dollar parity plummeted from Rs183.5 to Rs286.4, a decline of Rs103 or 56 per cent. This substantial and rapid depreciation has also contributed to inflation.

On a recent Wednesday, the rupee slid further to Rs295. An immediate outcome of this mounting debt is a considerable rise in the cost of debt servicing. It is projected that debt servicing will exceed Rs5.8 trillion by the end of the last fiscal year.

As a result of reckless borrowing, Pakistan’s total debt and liabilities have surged to Rs77.1 trillion, equivalent to 91.1 per cent of the national economy’s size. This ratio is deemed unsustainable for a developing nation like Pakistan.

During the past four years of the IMF programme, Pakistan struggled to enhance the Federal Board of Revenue’s (FBR) tax-to-GDP ratio, despite it being a priority for both the IMF and the World Bank.

This raises concerns about the effectiveness of obtaining foreign loans for the sake of tax reform. Moreover, there has been a lack of serious efforts to control expenditures. The Shehbaz Sharif government, like its predecessors, continued to allocate funds to projects and initiatives that fall under provincial jurisdiction as per the constitution.

August 17, 2023
Total volume of debt on Pakistan has risen to Rs49.2 trillion

The National Assembly was informed on Monday that Pakistan now owes a total of Rs49,200 billion.

According to Finance Minister Ishaq Dar, as of June 30, 2022, the country had a domestic debt of Rs31,000 billion and an external debt of Rs18,160 billion.

Indicators for the sustainability of the nation’s external debt further declined in the previous fiscal year, according to a report from the finance ministry, as a result of the government’s increased reliance on short-term loans from abroad and the risks associated with refinancing and rupee depreciation.

For the fiscal year 2021–2022, the public debt indicators linked to debt maturity, currency risks, refinancing risks, and interest rate risks had gotten worse, according to the Annual Debt Review and Public Debt Bulletin.

The Public Debt Management Office and the federal government did a dismal job, within a year, the overall public debt increased by Rs9.3 trillion, from Rs39.9 trillion to Rs49.2 trillion. according to Express Tribune.

According to the finance ministry, currency depreciation caused an increase of Rs3.8 trillion as the exchange rate dropped from Rs157.3 to a dollar in June 2021 to Rs204.4 in June 2022. Budget finance requirements were the cause of the remaining increase.

The proportion of external debt in the total public debt climbed from 34 per cent in 2020–21 to 37 per cent in the most recent fiscal year. It was approaching the 40 per cent upper limit.

October 25, 2022