ISLAMABAD: Pakistan’s public debt increased by over 28 per cent or Rs11.3 trillion between June 2021 and September 2022 to Rs51.13tr mainly because of policy prescriptions like devaluations and interest rate hikes, rather than additional debt inflows for economic growth.

The total public debt which was Rs39.87tr by end-June 2021, increased to Rs49.19tr by end-June 2022, showing an increase of Rs9.3tr. This further rose to Rs51.13tr by end-September 2022. The Fiscal Responsibility & Debt Limitation Act (FRDLA) threshold was thus violated by a big margin.

Resultantly, the public debt to GDP ratio increased from 71.5pc of GDP in June 2021 to 73.5pc by end of June 2022. The per capita debt, therefore, increased from Rs175,625 per person in June 2021 to Rs225,247 in September 2022 – an additional indebtedness of almost Rs50,000 per person in just 15 months, up by 28pc.

This has been revealed in Debt Policy Statement submitted to the parliament on Friday under statutory requirements of the FRDLA. During FY22, Pakistan’s debt-to-GDP ratio witnessed an increase of 2 percentage points and stood at 73.5pc at end-Jun 22 compared with 71.5pc a year earlier. This was mainly due to adverse exchange rate movement on account of the depreciation of the rupee against foreign currencies which stood around 5pc of GDP, the statement said.

This ratio remained below the pre-pandemic level of 74.7pc for Pakistan, contrary to global debt-to-GDP levels remaining above the pre-pandemic level, the report said. However, it was higher than the threshold of 58pc to be achieved by FY22 as stipulated in FRDLA.

The policy statement said the domestic debt which stood at Rs26.26tr by end-June 2021 increased to Rs31.04tr a year later on June 30, 2022 and further rose to Rs31.40tr by end-September 2022. Likewise, the external debt increased from Rs13.60tr in June 2021 to Rs18.16tr in June 2022 and to Rs19.73tr in the following three months i.e. September 2022.

The report said the major cause of an increase in public debt was on account of exchange rate losses worth Rs3.76tr, followed by Rs3.18tr due to an increase in interest rates and about Rs2.43tr for primary deficit impact. It claimed the government was committed to reducing this debt-to-GDP ratio on the back of running primary surpluses and promoting measures that support higher long-term economic growth. With a lower fiscal deficit, public debt is projected to enter a downward path.

The policy statement noted that external public debt stood at $88.8bn in end-June 2022, witnessing a net increase of around $2.4bn during the year. Overall, the debt from multilateral and bilateral sources increased by $2.4bn. In addition, Pakistan raised $1bn through tap-issuance of a multi-tranche transaction of 5, 10 and 30-year Eurobonds, besides $300m commercial loans while $700m debt was reduced through non-resident investments in Government Securities, Naya Pakistan Certificates and Pakistan Banao Certificates.

Gross external disbursements during 2021-22 amounted to $16.2bn against external public debt repayments of $11bn.

The share of external debt in total public debt increased from 34pc in 2020-21 to 37pc in 2021-22 and was contained below the benchmark (maximum limit) of 40pc. The increase was attributable mainly to exchange rate depreciation rather than excessive external borrowings.

The volume of new government guarantees issued during a financial year is limited under FRDLA at 2pc of GDP and the total stock of guarantees is limited to 10pc of GDP. This limit is applicable on guarantees issued both in local and foreign currencies.

Published in Dawn, April 1st, 2023