ISLAMABAD: The government has allocated Rs3.060 trillion for debt servicing (including interest payments) in the next fiscal year 2021-22.

During the current fiscal year, Rs2.94tr had been earmarked for the same.

The federal government allocated a sum of Rs1.6tr for foreign loans repayment, short-term loans and other advances in FY22. Rs1.49tr has been allocated for debt servicing in the current fiscal year, however, revised estimates placed it at Rs1.06tr.

Foreign Loans repayment for FY22 will be Rs1.42tr against Rs841 million for the current fiscal year. For short-term foreign credits, Rs74.4bn has been allocated for the next fiscal year. This year, revised estimates for short-term foreign credits are at Rs121.9bn.

According to the Pakistan Economic Survey of 2020-21, total public debt was recorded at Rs38,006bn at end March 2021, registering an increase of Rs1,607bn during first nine months of current fiscal year (9MFY21) which was much less when compared with the increase of Rs2,499bn witnessed during the same period last year.

The increase in total public debt during 9MFY21 was even lower than the federal government borrowing of Rs2,065bn for financing the fiscal deficit. The differential is primarily attributable to appreciation of the Pak rupee against the US dollar by around nine per cent which led to a decrease in the value of external public debt when converted into the local currency.

Debt from multilateral and bilateral sources cumulatively constituted over 80pc of external public debt portfolio at end March 2021. A set of reforms initiated by the government to improve the economy has brought strong support from multilateral development partners during the last two years. This is expected to strengthen confidence and catalyse additional support from development partners’ public debt in the coming years which will also help in reducing the pressure on domestic sources.

Pakistan is availing the G-20 Debt Service Suspension Initiative (DSSI) for a period of 20-months (May 2020-December 2021) which will help defer the debt servicing impact to the tune of around US$3.7bn during this period.

The government remained within the benchmarks and thresholds defined in the Medium-Term Debt Management Strategy (MTDS) at the end of December 2020.

The Economic Survey claims that Pakistan has witnessed one of the smallest increases in its public debt during the Covid-19 pandemic. Global public debt to GDP ratio increased by 13 percentage points – from 84pc in 2019 to 97pc in 2020 – whereas Pakistan’s Debt-to-GDP ratio witnessed a minimal increase of 1.7 percentage points and stood at 87.6pc at end June 2020 compared with 85.9pc at end June 2019.

Interest servicing was recorded at Rs2,104bn during 9MFY21 against the annual budgeted estimate of Rs2,946bn. Domestic interest payments were recorded at Rs1,934bn and constituted around 92pc of total interest servicing during 9MFY21 which is mainly attributable to higher volume of domestic debt in total public debt portfolio.

On a full year basis (2020-21), interest servicing is expected to remain below the budgeted estimates primarily due to extension of DSSI from January to June 2021, appreciation of Pak rupee against the US dollar and lower interest servicing on account of National Sav­ings Schemes due to withdrawals against discontinued prize bonds.

Published in Dawn, June 12th, 2021