KARACHI, August 16, 2024 – Pakistan government debt has escalated to a staggering Rs 69 trillion by the end of June 2024, marking a significant rise over the last fiscal year, according to data released by the State Bank of Pakistan (SBP) on Thursday.
The increase in debt is attributed to several economic challenges, including high gross financing needs, ongoing budget deficits, sluggish revenue collection, and escalating interest payments. In June alone, the government added Rs 8 trillion to its debt, representing a 13% increase. The central government’s debt climbed by 1.6%, or Rs 1.09 trillion, from the previous month, rising from Rs 67.8 trillion to Rs 68.9 trillion.
Debt-to-GDP Ratio Falls Despite Rising Debt
Interestingly, despite the mounting debt, the total central government debt as a percentage of gross domestic product (GDP) decreased to 65% in FY24, down from 73% in FY23. This decline may indicate some recent improvements or adjustments in the economy, yet the underlying structural issues remain a significant concern for economic stability.
The domestic debt of the government witnessed a sharp increase of 21.5% in FY24, reaching Rs 47.2 trillion. On a month-on-month basis, domestic debt also rose by 2%. Economic analysts have attributed this surge in debt to persistent fiscal deficits and the escalating costs of debt servicing, driven by high interest rates and a depreciating rupee.
Reliance on Borrowing Intensifies
The government’s reliance on borrowing has intensified, primarily due to limited revenue collection. This situation is further exacerbated by inflationary pressures and financial support extended to loss-making public sector enterprises. Analysts warn that the high interest rates on existing debt have significantly increased the cost of servicing, creating a vicious cycle where new debt is often issued to pay off the interest on old debt, leading to a net increase in total debt levels.
While the reduction in debt as a percentage of GDP may appear as a positive sign, experts caution that it does not necessarily reflect a resolution to the country’s fiscal challenges. The underlying issues, such as persistent budget deficits and the high cost of debt servicing, continue to pose a threat to economic stability.
External Debt and Liabilities
The SBP’s data also revealed a slight decrease in the country’s external debt, which fell by 1.3% to Rs 21.8 trillion in FY24. However, on a month-on-month basis, external debt saw a minor increase of 1%. The reduction in foreign debt can be attributed to a stable exchange rate and low credit ratings, which have made it difficult for Pakistan to secure fresh loans from international commercial banks. Additionally, Pakistan concluded a $3 billion short-term loan program in April, helping the country avert a potential sovereign default.
The overall debt and liabilities of Pakistan increased by 11% to Rs 84.9 trillion in the last fiscal year. Despite this increase, the debt and liabilities as a percentage of GDP decreased to 80.1% in FY24, down from 91.2% in the previous year. Specifically, the country’s total debt rose by 11.4% to Rs 81.928 trillion, making up 77.3% of the GDP, compared to 87.7% in FY23. Additionally, the country’s total liabilities amounted to Rs 4.644 trillion, reflecting a 1.2% increase from the previous year.
Fiscal Sustainability in Question
The persistent rise in debt highlights the ongoing fiscal challenges facing Pakistan. With limited revenue streams and high-interest obligations, the government’s ability to manage its debt sustainably remains in question. The economic outlook suggests that unless structural reforms are implemented to address these issues, Pakistan may continue to face rising debt levels, further straining its financial resources and economic stability.
