October 30, 2001	Tuesday	Shaba'an 12, 1422

KARACHI, Oct 29: Every single Pakistani now carries a debt burden of about Rs29,000 and earns only Rs25,000 a year, reveals the State Bank of Pakistan’s annual report for the year 2000- 2001.

Released on Monday, the report discloses that Pakistan’s per capita debt exceeded per capita income in the year 1999, and since then, this gap is expanding. In the current year 01, the report puts per debt burden at Rs28,784 and per capita income at Rs24,965.

At over four trillion rupees (Rs 4,003.3 billion), Pakistan’s total debt liability is now 115 per cent of the GDP in 01. “In rupee terms, FY01 saw the highest one year increase in total debt, mainly driven by a large rupee depreciation (18.6 per cent) during the course of the year,” the report says while pointing out the net addition of Rs587.2 billion in the debt, a sharp increase compared to average Rs372.2 billion figure realized over the previous two years. External debt at Rs2,223.8 billion has risen to 55.5 per cent of the total debt. Domestic debt amounts to Rs1,708.5 billion.

Excessive government expenditures, stagnant tax revenues, high return on government securities and inappropriate sequencing of financial reforms led to burgeoning domestic debt profile while large current account deficits, stagnant export revenues and declining workers’ remittances are the cause of mounting foreign loans that have forced “Pakistan into an unsustainable situation,” the report explains.

“The government’s growing indebtedness has become the gravest problem faced by the economy,” is the blunt observation of the SBP report while pointing out that the stock of total debt has exceeded Pakistan’s gross domestic product at market price.

Domestic debt increased by Rs148 billion in 01. Its composition now reveals two interesting features: (i) the share of unfunded debt is no longer the highest, which the SBP report terms a positive consequence of interest rate rationalization and other measures taken with respect to the National Saving Schemes and (ii) the share of permanent debt has stabilized with the introduction of Pakistan Investment Bonds (PIBs) in the December 2000 and the higher inflows in the Prize Bond schemes.

The permanent debt amounted to Rs281.1 billion at the end June 01 showing an increase of Rs21.5 billion. The PIB contributed Rs46.1 billion and an additional inflow of Rs10.4 billion was seen in prize bonds.

The SBP report notes with satisfaction the share of long term debt has improved to 56.6 per cent from 51.3 per cent mainly because of the launch of PIBs in December 2000 and after stopping sales of FIBS in June 1998 and ban on institution investment in National Saving Schemes in March 2000.

A significant feature in FY01 was the realization of “long awaited reduction in interest rates” when interest payments showed a decline of Rs19.7 billion compared to FY00. The Rs27.5 billion fall in domestic interest payments led the way for this easing in debt payments.

The report reveals that average interest rates on each category of domestic debt (permanent debt, floating debt and unfunded debt) has witnessed a significant decline in FY01. This, according to the SBP report, indicates that government borrowing from the banking system is the cheapest, while the permanent debt is the most expensive, closely followed by the unfunded debt.

Stock of unfunded debt swelled to Rs689.7 billion at the end June 01 and comprises 40.4 per cent of the total domestic debt. Although the share of unfunded debt has witnessed a consistent increase in the second half of 1990s, this marginally declined in FY01 on account of low receipts from the NSS instruments.

The report also offered an ownership classification of the domestic debt. The banking system holds 49 per cent of total domestic debt while 51 per cent is held by non-banking system in the form of NSS and prize bonds and long term government bonds.

According to the report, this ratio has remained fairly stable in last three years.

In the banking system, the SBP is the largest holder of domestic debt with 36 per cent holding while 13 per cent is with the schedule banks. The report reveals that debt held by the banking system recorded a single digit increase in FY01 compared to double digit last year. Compared to FY 00, the growth of domestic debt held by the banking system has declined which the report largely attributes to stabilization programme.