Pakistan's total debt getting close to size of economy | 2019-05-22 |

Pakistan's total debt getting close to size of economy

21st May, 2019 11:51:46 printer

ISLAMABAD: Pakistan’s debt and liabilities have risen steeply to Rs35.1 trillion or 91.2% of size of the economy, further deepening concerns over debt trap that has started limiting the government’s policy options.

The statistics released by the State Bank of Pakistan (SBP) at the weekend showed that only from July through March of this fiscal year, there was a net addition of Rs5.2 trillion in the country’s total debt and liabilities, showing 17.4% growth over the debt level of June 2018, report agencies.

The deteriorations have been witnessed in domestic, external and public sector enterprises debt, both in absolute terms and the size of the national economy, showed the central bank data.

Total debt and liabilities also include public sector enterprises (PSEs) debt, non-governmental external debt and inter-company external debt from direct investors abroad. The government’s direct responsibility was worth Rs28.6 trillion but it is indirectly responsible for most of the remaining debt due to guarantees given by the Finance Ministry and also involvement of the SBP in these borrowings.

The Pakistan Tehreek-e-Insaf (PTI) government had promised to revive loss-making enterprises. By March, total losses of the PSEs surged to Rs1.9 trillion, a net addition of Rs414.2 billion or 28.5% in the past nine months.

Monetary policy: SBP hikes interest rate by 150bps to 12.25%

External debt and liabilities of Pakistan mounted to $105.8 billion as of March 2019, according to the central bank. During the first nine months of this fiscal year, there was a net addition of $10.6 billion in the total external debt and liabilities with a growth rate of 11.1%.

Pakistan’s total debt and liabilities are now equal to 91.2% of its gross domestic product (GDP). Only to service the public debt, the finance ministry spends 36% of the total budget.

Of the Rs35.1 trillion, the gross public debt, which is the direct responsibility of the government, stood at Rs28.6 trillion as of the end of March. The gross public debt was now equal to 74.4% of GDP, far higher than the 60% statutory limit set in the Fiscal Responsibility and Debt Limitation Act of 2005.

There was an increase of Rs3.7 trillion in the gross public debt in nine months, which was far higher than the overall budget deficit recorded during the period. One of the key reasons behind the higher debt was the increase in interest rate and depreciation of the rupee during July-March period of the current fiscal year.

The depreciation of one rupee adds Rs105.8 billion to the public debt. Similarly, a 1% increase in interest rate increases the cost of debt servicing by roughly Rs180 billion. This ultimately increases borrowing requirements for the finance ministry.

The central bank on Monday increased the interest rates by 1.5% aimed at fulfilling the prior condition of the International Monetary Fund (IMF) for qualifying $6 billion bailout package. It will add over Rs260 billion in the debt servicing cost of the finance ministry on the existing stock of the debt. Since December 2017, the central bank has let the currency weaken by over 40% and has jacked up interest rate by 6%. Despite over 40% currency devaluation, the exports witnessed negative growth during the current fiscal year.