Public debt increases by 5.61 pc in July-April for fiscal year 2021
KARACHI: Pakistan’s public debt increased by 1.971 billion rupees or 5.61% in 10 months of current fiscal year
year as the government borrowed heavily to finance the budget deficit and spending needs related to Covid. Rising interest payments also contributed to the increase in the stock of public debt.
Central government debt stood at Rs 37,078 trillion at the end of April 2021, up from Rs 35,107 trillion in the period ending June 2020, according to central bank data released on Monday.
Debt rose 8% year-on-year in April. It stood at Rs 34,323 billion in the period ending April 30, 2020. However, the external debt fell 0.76% to Rs 11.733 billion at the end of April 2021.
Within domestic debt, long-term debt increased by 8.29% to reach Rs.19172 trillion, while short-term debt increased by 10.25% to reach Rs.6.150 trillion . The main culprit of the public debt is the budget deficit. However, it fell 0.6 percentage points to 3.5% of gross domestic product in the first three quarters of fiscal 2021.
However, higher mark-up payments offset the gains in the primary balance. This resulted in an increase in the stock of public debt. Most of the interest payments were financed by issuing new debt.
The State Bank of Pakistan (SBP), in its second quarterly report, said the pace of debt build-up remained slower in the first half of fiscal 2021, compared to the same period the last year, mainly due to a lower volume of additional government. deposits with the banking system and revaluation gains on external debt in rupees.
“From an institutional point of view, the government has respected its commitment of zero new borrowing from the central bank and relied on the banks provided for domestic financing needs,” the SBP report said.
As for debt and external liabilities, nearly 83% of the increase (in dollars) corresponds to Pakistan’s increased engagement with multilateral and bilateral sources.
The government also borrowed through commercial sources in July-December for fiscal year 2021. These borrowings were long-term in nature, but mainly concentrated in the first and second quarters; the stock of commercial loans had declined as the government repaid its short-term obligations, he added.
The SBP said the current economic recovery has been supported by proactive and well calibrated policies from the government and the SBP since the Covid shock. In view of the high public debt, targeted budget support has mainly been provided through a reallocation of expenditure focused on the most vulnerable, notably through the Ehsaas program.
This was made possible by the buffers that had been made in the economic stabilization phase before the Covid pandemic. Pakistan experienced one of the lowest increases in public debt in the world after the Covid shock, supporting market sentiment and investment prospects, SBP added.
The government could aim for a GDP of 4.8% and a budget deficit of 5.5-6% for fiscal year 2022. Analysts said the expected higher growth rate is likely to lead to an increase in the borrowing needs of the country. government and, consequently, an increase in the budget deficit over the next fiscal year. Increasing tax revenues as well as managing debt commitments would be a major challenge for the government.