Karachi, December 6, 2023 – Pakistan has recorded significant surge in the country’s total debt, reaching Rs 62.48 trillion by the end of October 2023.
The State Bank of Pakistan (SBP) reported a worrisome increase of Rs 1.64 trillion during the first four months (July – October) of the fiscal year 2023-2024, compared to the Rs 60.84 trillion recorded on June 30, 2023.
Analysts attribute this surge to the government’s reliance on both domestic and external borrowing to bridge the fiscal deficit, driven by an inadequate tax revenue collection that falls short of meeting the country’s escalating expenditures. The situation is further exacerbated by the absence of external financing, leaving the government with no choice but to heavily depend on domestic borrowing.
A detailed analysis of the data indicates a notable spike in domestic debt, which surged by 4 percent or Rs 1.599 trillion during the review period. The federal government’s domestic debt soared to Rs 40.409 trillion in October 2023, compared to Rs 38.810 trillion in June 2023.
Breaking down the federal government’s domestic debt, it includes permanent debt amounting to Rs 28.033 trillion, unfunded debt standing at Rs 2.881 trillion, foreign currency loans totaling Rs 378 billion, and short-term loans worth Rs 8.988 trillion as of October 2023.
In the same fiscal year, the federal government’s external debt experienced a marginal uptick of Rs 42 billion, reaching Rs 22.073 trillion in October 2023, compared to Rs 22.031 trillion. This external debt composition consisted of Rs 22.041 trillion in long-term loans and Rs 31.8 billion in short-term loans.
One factor that contributed to a relatively restrained surge in external debt was the stability in the exchange rate and the appreciation of the Pakistani Rupee against the US dollar. According to the State Bank, the exchange rate was Rs 286.39905 per US dollar in June 2023, while it stood at Rs 281.5200 in October 2023.
While the exchange rate stability may have mitigated the impact on external debt, the overall trajectory remains a cause for concern. The growing reliance on debt to finance the fiscal deficit highlights the urgent need for structural reforms in revenue generation and expenditure management. Experts emphasize the importance of bolstering the country’s tax collection mechanisms and exploring avenues for sustainable economic growth to reduce dependence on borrowing.
As Pakistan navigates these economic challenges, policymakers are urged to adopt prudent fiscal measures to ensure long-term financial stability and safeguard the nation’s economic well-being. The rising debt levels underscore the necessity for comprehensive reforms to foster a resilient and self-sustaining economy in the face of global economic uncertainties.
