KARACHI: The country’s domestic debt has increased by over Rs2 trillion during the current fiscal year (FY21). However, the amount was less than the amount borrowed in the same period of FY20.

The latest data issued by the State Bank (SBP) on Monday showed that government’s borrowing has slightly decreased during FY21. Analysts attribute this development to higher foreign exchange inflows in the country and more borrowings from external sources.

Pakistan’s domestic debt and liabilities (Rs580bn liabilities) till April 2021 reached Rs25.925tr compared to Rs23.875tr at the end of June 2020. An increase of Rs2.050tr was noted during the first 10 months of the current fiscal year (10MFY21). The increase during in the same period in FY20 was Rs2.315tr –reflecting a decline in borrowing in FY21.

Borrowing during the last 12 months (April 2020 to April 2021) increased by Rs2.350tr. This borrowing period covers the worst part of the Covid-19 pandemic in the country which hit the economy hard. The impact was mitigated through stimulus provided by the SBP along with supporting policies and relaxation provided by the government to all segments of the economy.

The government has been struggling to reduce its domestic debt which demands the largest share in the annual budget for its debt servicing. Each year, the government has to cut its development spending to keep fiscal deficit within the range as per the agreement with the International Monetary Fund. However, the cut in development spending greatly hits economic growth and increases joblessness in the country.

Reports appearing in the media suggest the government is in the process of increasing the federal development spending to Rs900bn for the next fiscal year (FY22). It depends upon the growth of the economy and increase in the revenues to keep the development spending intact for FY22.

Published in Dawn, June 8th, 2021