KARACHI: The central government debt jumped by Rs4 trillion, or around 7.7 per cent, in January to reach close to Rs55tr, the State Bank of Pakistan (SBP) data showed on Tuesday.

The figure was Rs42.39tr in January 2022, which means it has increased by 30pc over the past year.

Meanwhile, domestic debt rose to Rs34.3tr by end-January, 3.4pc higher than it was a month ago and around 25pc higher than the year-ago figure.

External debt stood at Rs20.69tr, recording a jump of 15.7pc in a month and 38pc in a year.

The cash-starved government, which has been struggling to generate revenues, is heavily dependent on borrowing. The SBP’s data shows that during the first seven months (July to January) of the current fiscal year, the central government domestic debt rose by Rs3.218tr, an increase of 10.4pc.

The government’s borrowings through long-term, high-cost Pakistan Investment Bonds (PIBs) reached Rs20.9tr by the end of January from Rs15.59tr a year ago, recording an increase of 34pc.

Domestic, external loans swell 25pc and 38pc, respectively, in 12 months

The long-term, high-yielding borrowing has already cost heavily to the government, eroding most of the development expenditure.

Pakistan’s interest-to-revenue ratio, which was the worst in the region (just behind Sri Lanka) at 42pc, will balloon up to 54pc by the end of June this year. It means interest rate payments will rise from Rs4tr to Rs5.4tr.

The recent increase of 300 basis points in the SBP’s policy interest rate will also hit the government’s capacity to spend on development and other basic requirements. The central government’s external debt increased more aggressively during the year through January 2023, rising by 38pc. During the current fiscal year up to January, the external debt increased by 23.5pc, or Rs3.939tr.

Due to the rupee’s devaluation, the external debt has increased at a much higher pace and will increase significantly over the next month.

The government uncapped the exchange rate last month, after which the dollar jumped by about 20 per cent, which means the government will have to arrange this additional money for external debt servicing.

The SBP data also showed that the central government’s total debt, including both the domestic and external debt, increased by 15pc (Rs7.158tr) during July-January.

Published in Dawn, March 8th, 2023