Islamabad:
The public debt jumped to a new RS80.5 Billion record by the end of June – an addition of 25.4 billion rupees per day, breaking an act of parliament and more weakening the ability of government debt, revealed official statistics.
The State Bank of Pakistan (SBP) has published the debt bulletin for exercise 2024-25 which showed that public debt increased both in absolute terms and in relation to the size of the economy, a fatal combination which highlights the very unbearable debt of the country.
At the end of June, the raw public debt increased to 80.5 billions of rupees, 9.3 billions of rupees or 13% higher than the burden of the previous year, according to the debt bulletin of the Central Bank. On average, the government added 25.4 billion rupees every day during fiscal year 25. The report indicated that in terms of economy size, gross public debt rose from 67.8% of GDP to 70.2%. Under the tax on tax liability and the limitation of debt, the government is required to reduce the debt from 0.5 to 0.75% of GDP each year until it reaches 50% by 2032-33. However, the coalition government violated the law.
High debt has left little space to spend productive sectors of the economy, with almost half of the budget consumed by payments of interest. Despite this, there remains a strong desire in official circles to spend more on mega projects, in particular those who have political advantages due to the pressure of coalition partners.
Inclusive everything, total debt and Pakistan’s liabilities increased to 94.2 rummage of rupees by the end of June, or 82.1% of GDP, according to the central bank.
The growing load of debt in absolute terms and GDP also poorly reflects the International Monetary Fund (IMF), which could not ensure a sustainable tax discipline. This higher debt limit indicates that the Pakistan debt burden is not durable. However, the IMF continues to declare it durable to avoid the need for immediate restructuring of the interior and foreign debt. The significant increase in public debt was mainly due to the financing of the federal budget deficit, the costs of interest being a major element. Consequently, Pakistan’s financing requirements remain at unsustainable levels, between 20% and 23% of GDP. For a developing country like Pakistan, financing needs of 15% of GDP are considered to be manageable.
The central bank’s report has shown that government’s interior debt has increased from RS47.2 Billions to Rs54.5 Billion by exercise, an increase in RS7.3 Billions or 15.5%. Pakistan’s interior debt has increased three times faster than the economy and inflation. The government’s external debt went from RS21.8 Billions to Rs23.4 Billion – A jump of RS1.7 Billions – despite the local currency remaining largely stable.
Pakistan external debt is mainly obtained from concessional bilateral and multilateral sources. However, the growing share of short -term debt in recent years has risks for the sustainability of debt due to high risks of refinancing, which further increases gross financing needs. In the external debt portfolio, the fixed rate debt represents approximately two thirds of the total external debt.
Pakistan’s budgetary position is still vulnerable to shocks, the country being currently faced with one of the worst floods in its history which will have implications for the main balance and public debt.
A report from the Ministry of Finance said that due to a limited budgetary space, a sudden change in primary balance could not be excluded. If a shock pushes the main deficit near the historic levels, the debt / GDP ratio will exceed the reference of 70%, risking more sustainability of the debt, according to the report of the debt office of last year.
The Central Bank’s report also noted that the IMF debt had increased by 13% to 2.63 billions of rupees by June of this year. Pakistan currently benefits from a 7 -billion dollar IMF rescue package – the 25th program – aimed at ensuring budgetary and external stability.
High debt has caused a flambé of debt service costs. The SBP said that the country had spent RS13.2 Billion for the reimbursement of maturation loans and interest in the last financial year, an increase of 10% or 1.2 Billion of rupees compared to the previous year. Interest payments alone consumed 9.5 billions of rupees during the last financial year. Pakistan also paid 162 billion rupees, or $ 570 million, in interest for the IMF during fiscal year 25.
Overall, in dollars, the debts and external liabilities of Pakistan increased to $ 135 billion by June, with an addition of $ 4 billion during an exercise. Compared to previous years, the pace of the growth of external debt was slower due to the central bank’s decision to buy more than $ 8 billion on the local market.
