PAKISTAN’s public debt and liabilities have increased by 150 per cent since 2008 to touch Rs15.15 trillion, or 68.4 per cent of GDP at the end of September 30, 2012.
The amount recorded by the State Bank of Pakistan exceeds by a large margin the limit of 60 per cent set by the parliament.
The size of the economy during the comparable period is reported to have gone up by 130 per cent from Rs10.243 trillion to Rs23,655 trillion. The pace of growth in public debt has outpaced GDP expansion by a wide margin, adding to the vulnerabilities of the economy.
Similarly, there is huge gap in debt and revenue growth rates. The totalrevenue rose from Rs1.5 trillion in June 2008 to Rs2.566 trillion in June 2012, recording a growth of 71 per cent.
According to State Bank of Pakistan, the public debt and liabilities at the end of first quarter of current fiscal year at Rs15.15 trillion posted an annual growth of 17.7 per cent. Minus liabilities, the total public debt stood at Rs14.47 trillion on September 30 or 65.3 per cent of GDP, registering a year-on-year growth of 18.1 per cent.
The central bank data suggest the government’s domestic debt almost doubled since fiscal year 2010 from Rs4.5 trillion to Rs8.1 trillion in September 2012 while external debt increased from Rs5 trillion to Rs6.05 trillion, up 20 per cent.
In contrast, in a debt policy statement issued by ministry of finance, the total public debt stood at Rs13.199 trillion at the end of first quarter 2012-13 registering an increase of Rs532 billion or 4.2 per cent.
In comparison to Rs6.04 trillion in June 2008, the debt increased by 118 per cent in 2012 if finance ministry’s data is to be believed.
The level of debt depends on the debt servicing capacity based on growth in export earnings and revenue generation. Generally, the public debt is measured as a percentage of GDP but it is more important to see it in the context of cash flow ratios because earning potential more accurately reflects on repayment capacity. GDP growth may not really indicate growth in revenues in Pakistan where revenue potential remains short of actual recoveries.
While real growth of public debt increased by 8.3 per cent in 2008 followed by 5.2 per cent, 3.9 per cent and 1.6 per cent in subsequent years and finally by 7.9 per cent in 2012, the real growth in revenues remained in the negative by 0.6 per cent in 2008, increased by a nominal 2.9 per cent in 2009 and falling in the negative again to 8.3 per cent in 2011 and growing by 3.9 per cent in 2012.
Throughout these years, the revenue balance and primary balance as percentage of GDP has been in the negative. The revenue balance as percentage of GDP was in the negative of 3.2 per cent in 2008, followed by 1.2 per cent deficit in 2009, 1.7 per cent in 2010, 3.3 per cent in 2011 and 2.5 per cent in 2012 excluding onetime electricity arrears of Rs420 billion in 2011 and 2012.
Likewise, the primary balance (total revenue adjusted for non-interest payments) as percentage of GDP remained in the negative at 2.5 per cent in 2008, followed by 0.1 per cent, 1.6 per cent, 2.5 per cent and 2.2 per cent respectively until 2012.During the same period, fiscal deficit stood at 7.6 per cent in 2008, followed by 5.3 per cent, 6.3 per cent and six per cent in the following years to finally cross eight per cent in 2012.
The public debt to revenue ratio has been posting a continuous rise since 2008. It stood at 403 per cent in 2008, increased to 412 per cent in 2009, 429 per cent in 2010, 475 per cent in 2011 and 494 per cent in 2012. As a result, the debt servicing to revenue ratio has hovered between 46 per cent and 40 per cent in the last five years and debt servicing as percentage of GDP has remained stubborn at or around five per cent.
In was in these circumstances that the finance ministry in its annual report to the parliament as required by the Fiscal Responsibility and Debt Limitation Act of 2005 conceded major slippages in meeting the conditions of the Act during financial year 2012 owing to higher expenditures arising out of debt servicing costs, drying up of foreign programme loans and currency devaluations.
The government also conceded that some of the requirements of the law continued to be violated every year consecutively since the current government came into power in 2008. Under the Fiscal Responsibility and Debt Limitation Act 2005, the government is required to submit annual reports to the parliament on debt and fiscal situation.
The first key requirement of the law ‘to reduce the revenue deficit to nil not later than June 2008 and thereafter maintaining a revenue surplus’ remained unachievable throughout the last five years.
“Revenue balance has been in negative since 2006 because of increasing exogenous and endogenous challenges”.
The reports indicate the revenue deficit which stood at 3.2 per cent of GDP in 2008, declined to 1.2 per cent in 2009, increased to 1.7 per cent in 2010, jumped to 3.3 per cent in 2011 and stood at 2.5 per cent of GDP at the end of fiscal year 2012.
The second most important condition to limit total public debt below 60 per cent of GDP and then maintaining it at this limit every year also could not be fulfilled. “The government consolidated Rs391 billion or 1.9 per cent into public debt in 2011-12 against outstanding previous years’ subsidies related to food and energy sectors due to which public debt to GDP stood at 61.3 per cent of GDP at end June 2012”.
The third key milestone required reducing total public debt by no less than two-and-a-half per cent of GDP every year for 10 years — 2003 to 2013 — provided poverty alleviation related expenditures did not fall below 4.5 per cent of GDP. (This meant doubling health and education related expenditures as percentage of GDP).
The government admits that reducing debt by 2.5 per cent every year remained a pipedream throughout the 10-year period including fiscal year 2011-12. Total debt to GDP ratio stood at 59 per cent in 2008, increasing to 60 per cent in 2009 and 2010 and then dropping slightly to 59.3 per cent in 2011 and finally increased again to 61.3 per cent in 2011-12. The central bank puts this figure at 68 per cent.
The government also failed to double allocations for health and education throughout its five-year tenure. The allocations for education as percentage of GDP stood stagnant at or around 1.8 per cent in four years and slightly increased to 2.1 per cent in fiscal year 2011-12. Likewise, the allocations for health also kept on fluctuating between 0.6 and 0.8 per cent of GDP in all five years.