Things Getting Murkier in Pakistan: Debt and Liabilities are Now 91% of Economy’s Total Size

Things Getting Murkier in Pakistan: Debt and Liabilities are Now 91% of Economy’s Total Size
ISLAMABAD: Pakistan’s debt and liabilities have risen steeply to Rs35.1 trillion or 91.2 per cent of the economy’s size, further deepening concerns over debt trap that has started limiting the government’s policy options, The Express Tribune said in an exclusive report.

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 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 per cent growth over the debt level of June 2018.

The central bank on Monday increased the interest rates by 1.5 per cent 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 SBP has let the currency weaken by over 40 per cent and jacked up interest rate by 6 per cent. Despite over 40 per cent currency devaluation, the exports witnessed negative growth during the current fiscal year.



 

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 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 per cent in the past nine months.

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 per cent.



Pakistan’s total debt and liabilities are now equal to 91.2 per cent of its gross domestic product (GDP). Only to service the public debt, the finance ministry spends 36 per cent 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 per cent of GDP, far higher than the 60 per cent statutory limit set in the Fiscal Responsibility and Debt Limitation Act of 2005.

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

Excluding the liabilities, the country’s total debt swelled to Rs33.1 trillion, up by Rs4.7 trillion or nearly 16.5 per cent in nine months. The total debt was equal to 85.8 per cent of the GDP.

The government’s domestic debt surged to Rs18.2 trillion with addition of Rs1.8 trillion in first nine months of the current fiscal year. Its external debt increased to a record Rs9.6 trillion by the end of March. Total external debt and liabilities surged to Rs13.5 trillion on the back of currency depreciation and new borrowings.

The SBP data showed that Pakistan’s foreign exchange liabilities doubled to $10 billion by March, an addition of $5 billion since June 2018. The central bank’s deposit-related liabilities increased to $5.7 billion from $700 million.

The Chinese, Saudi Arabian and United Arab Emirates loans are parked on the books of the central bank.

The PSEs’ total debt grew to Rs1.9 trillion at the end of March, an increase of Rs414.2 billion or 28.2 per cent in just nine months. Their domestic debt soared from Rs1.1 trillion to Rs1.4 trillion. Their external debt increased from Rs324.6 billion to Rs489.4 billion.

The debt taken by Pakistan from the IMF increased in rupee terms by Rs70 billion to Rs811 billion due to currency devaluation and despite Pakistan returned a tranche.

Total liabilities, which are indirectly the responsibility of the finance ministry, increased to Rs2.1 trillion by the end of March. There was an increase of Rs625 billion or 43 per cent in the liabilities.