Pakistan’s total debt and liabilities grew at an unsustainable rate of 26% to a new record level of Rs 78 trillion just last year – an amount that cannot be managed in the long term without debt restructuring.
The State Bank of Pakistan (SBP) reported on Friday that the country’s total debt and liabilities had escalated by Rs16 trillion at the end of September compared to a year earlier. The SBP noted that the country’s total debt and liabilities had reached Rs 78 trillion, with Rs 4.7 trillion attributable to liabilities. The government has accumulated debt at a rate of 26%, an average of Rs 44 billion a day since September last year.
The austerity measures introduced by successive governments have remained mere theoretical exercises with no real benefits. No government has implemented meaningful reforms to limit the accumulation of debt. The three main political parties have wavered and appear unwilling to undertake the difficult path of debt restructuring.
For the current fiscal year, the finance ministry initially budgeted Rs 7.3 trillion for interest payments alone. However, the government recently informed the International Monetary Fund that interest payments could soar to Rs8.5 trillion — a Rs1.2 trillion discrepancy in just four months, yet no blame was given for the flawed budget.
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Debt servicing costs cannot be reduced until the central bank lowers the key interest rate and the government negotiates with commercial banks for a reduction.
Gross public debt, which falls under the direct responsibility of the finance ministry, totaled Rs 64.5 trillion by the end of September, according to SBP data.
In the previous financial year, the federal budget deficit jumped to a record Rs 6.7 trillion, attributed to the expansionary and politically motivated fiscal policies of the PDM government. The increase in public debt exceeded the fiscal deficit, indicating the impact of currency depreciation. During their respective five-year terms, the PML-N added about Rs 10 trillion, the PPP Rs 8 trillion, and the PTI alone accumulated over Rs 19 trillion in public debt.
The burden will remain until major reforms are launched, including reviews of provincial projects, dismantling ministries operating in areas under provincial control and tackling defense spending and debt.
The main reasons behind the rise in public debt during PTI’s tenure were lower than targeted tax collection, sharp currency depreciation, higher interest rates, increased spending, losses from state-owned companies and mismanagement of debt.
Debt and liabilities of Public Enterprises stood at Rs2.33 trillion by the end of September, rising by a quarter and reflecting runaway losses by these firms. No government has taken steps to reform state-owned enterprises.
The boards of these state-owned enterprises are filled by political appointees, including caretaker finance minister Dr Shamshad Akhtar, the prime minister’s adviser on establishment and the deputy chairman of the Planning Commission.
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The average exchange rate at the end of September last year was Rs 228, depreciating by 26.3% to close at Rs 287.8 to a dollar within a year, significantly impacting the government’s external debt.
External debt rose 26% to Rs 33.4 trillion in a year, with a net increase of Rs 6.9 trillion, mainly due to currency depreciation and foreign exchange reserve creation through borrowing.
Pakistan’s external debt and liabilities stood at $128 billion by the end of September, an increase of $3.4 billion over the past three months. This external debt began to escalate again after the normalization of relations with the IMF.
The country’s IMF debt rose 31 percent to Rs 2.3 trillion by the end of September, according to the SBP.
The federal government’s total domestic debt rose to Rs 39.7 trillion, up by Rs 8.2 trillion (or 26%) over the past year.
The details revealed that in the July-September quarter, the country spent Rs 2.2 trillion solely on servicing total debt and liabilities – a figure that was Rs 635 billion, a 41.5% increase from the previous year. On interest payments alone, Pakistan disbursed Rs 1.56 trillion in three months, reflecting a 58% increase compared to the same period last year.
The country’s Debt Management Office is operating at capacity and the Finance Ministry appears reluctant to boost it, despite repeated pledges to the IMF and World Bank.
Published in The Express Tribune, November 11u2023.
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