Pakistan’s public debt increased by over 28 per cent or Rs 11.3 trillion between June 2021 and September 2022 to Rs 51.13 trillion mainly because of policy prescriptions like devaluations and interest rate hikes, rather than additional debt inflows for economic growth.
The total public debt which was Rs 39.87tr by end-June 2021, increased to Rs 49.19tr by end-June 2022, showing an increase of Rs 9.3tr. This further rose to Rs 51.13tr by end-September 2022. The Fiscal Responsibility & Debt Limitation Act (FRDLA) threshold was thus violated by a big margin, reports DAWN.
Resultantly, the public debt to GDP ratio increased from 71.5 per cent of GDP in June 2021 to 73.5 per cent by end of June 2022. The per capita debt, therefore, increased from Rs 175,625 per person in June 2021 to Rs 225,247 in September 2022 – an additional indebtedness of almost Rs50,000 per person in just 15 months, up by 28 per cent.
This has been revealed in Debt Policy Statement submitted to the parliament on Friday under statutory requirements of the FRDLA. During FY22, Pakistan’s debt-to-GDP ratio witnessed an increase of 2 percentage points and stood at 73.5 per cent at end-Jun 22 compared with 71.5 per cent a year earlier. This was mainly due to adverse exchange rate movement on account of the depreciation of the rupee against foreign currencies which stood around 5 per cent of GDP, the statement said.
This ratio remained below the pre-pandemic level of 74.7 per cent for Pakistan, contrary to global debt-to-GDP levels remaining above the pre-pandemic level, the report said. However, it was higher than the threshold of 58 per cent to be achieved by FY22 as stipulated in FRDLA.
The policy statement said the domestic debt which stood at Rs 26.26tr by end-June 2021 increased to Rs 31.04tr a year later on June 30, 2022 and further rose to Rs 31.40tr by end-September 2022. Likewise, the external debt increased from Rs 13.60tr in June 2021 to Rs 18.16tr in June 2022 and to Rs 19.73tr in the following three months i.e. September 2022.
The report said the major cause of an increase in public debt was on account of exchange rate losses worth Rs 3.76tr, followed by Rs 3.18tr due to an increase in interest rates and about Rs 2.43tr for primary deficit impact. It claimed the government was committed to reducing this debt-to-GDP ratio on the back of running primary surpluses and promoting measures that support higher long-term economic growth. With a lower fiscal deficit, public debt is projected to enter a downward path.
The policy statement noted that external public debt stood at $88.8b in end-June 2022, witnessing a net increase of around $2.4b during the year. Overall, the debt from multilateral and bilateral sources increased by $2.4b. In addition, Pakistan raised $1b through tap-issuance of a multi-tranche transaction of 5, 10 and 30-year Eurobonds, besides $300m commercial loans while $700m debt was reduced through non-resident investments in Government Securities, Naya Pakistan Certificates and Pakistan Banao Certificates.
Gross external disbursements during 2021-22 amounted to $16.2b against external public debt repayments of $11b.
The share of external debt in total public debt increased from 34 per cent in 2020-21 to 37 per cent in 2021-22 and was contained below the benchmark (maximum limit) of 40 per cent. The increase was attributable mainly to exchange rate depreciation rather than excessive external borrowings.
The volume of new government guarantees issued during a financial year is limited under FRDLA at 2 per cent of GDP and the total stock of guarantees is limited to 10 per cent of GDP. This limit is applicable on guarantees issued both in local and foreign currencies.