KARACHI: Pakistan’s external debt sharply increased by 38 per cent to PKR 20.69 trillion by end of January 2023 when compared with the debt a year ago, according to data released by the central bank on Tuesday.
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Pakistan, Saudi Fund sign debt service suspension pacts
ISLAMABAD: Pakistan and Saudi Fund for Development (SFD) have signed debt service suspension agreements amounting $846 million, a statement said on Thursday.
The agreements have been signed under the G-20 Debt Service Suspension Initiative (DSSI) Framework.
Nawaf bin Saeed Al-Malkiy, Ambassador of the Kingdom of Saudi Arabia to Pakistan witnessed the signing ceremony held in Islamabad.
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Dr. Saud Ayid R. Alshammari, Director General for Asia represented the SFD in the signing ceremony.
This amount which was due to be paid during the testing period from May 2020 to December 2021 will now be repaid over a period of six years starting from 2022 in semi-annual installments.
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Due to the support extended by the Saudi Fund for Development – one of the major bilateral development partners of Pakistan – along with other bilateral creditor countries, the G-20 DSSI has provided the fiscal space which was necessary to deal with the urgent health and socioeconomic needs of the Islamic Republic of Pakistan.
The total amount of debt that has been suspended and rescheduled under the DSSI framework, covering the period from May 2020 to December 2021, is $ 3,688 million.
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Pakistan has already concluded and signed 80 agreements with 21 bilateral creditors for the rescheduling of its debts under the G-20 DSSI framework, amounting to rescheduling of $ 2,088 million.
The signing of agreements with the Saudi Fund for Development brings the total rescheduled amount to $ 2,934 million while negotiations for the remaining $ 754 million are underway.
The agreements for this amount are expected to be signed with respective bilateral development partners within the current fiscal year.
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Pakistan debt-to-GDP ratio rises 1.7% during COVID-19
ISLAMABAD: The ministry of finance on Thursday said that Pakistan’s debt-to-GDP ratio has increased by 1.7 per cent during the pandemic as against an increase in global average of 13 per cent.
Responding to some media reports regarding the increase in public debt during the last three years, the statement said that a better way to measure the level of debt was through the Debt-to-GDP ratio instead of looking at the absolute values of debt.
“Global Debt-to-GDP ratio increased by 13 percentage points, whereas, Pakistan’s Debt-to-GDP ratio witnessed a minimal increase of 1.7 percentage points in 2019-20,” it said adding that the country’s Debt-to-GDP ratio in fact reduced by 4 percentage points indicating lower debt burden at end June 2021 as compared with last fiscal year.
The ministry said that the increase in debt during the last three years occurred mainly during the Fiscal year 2018-19 due to implementing difficult and unavoidable policy choices.
Had the market-based exchange rate, a sustainable level of Current Account Deficit, adequate cash buffers and long-term domestic borrowing profile been maintained, the debt burden would have been reduced further on the back of fiscal consolidation efforts supported by aggressive control on expenses and growth in tax and non-tax revenues.
As most of the major adjustments to fiscal and monetary policies have been made, the debt burden is projected to decline firmly over the next few years.
The statement while referring to media reports said that these reports ignored the underlying reasons behind such increase adding that in order to fully understand the underlying economic realities, there was a need to analyze the sources of increase in total public debt during last three years. The underlining reasons are:
Interest Expenses: Preference towards short-term domestic borrowing in absence of adequate cash buffers resulted in short-term profile of domestic debt at the end of FY2018.
This short-term profile led to high-interest cost on debt as interest rates had to be increased significantly to curb rising inflationary pressures. The government paid Rs 7.5 trillion against interest servicing which explained 50 percent of the increase in total public debt.
Currency Devaluation Impact: The exchange value of the Rupee was maintained at an artificially high level in the past which triggered the balance of payment crisis.
Transition to a market-based exchange rate regime, being an unavoidable policy choice, resulted in sharp exchange rate depreciation leading to high inflation, high interest rates, slower GDP growth, and lower import-related tax revenues.
This exchange rate depreciation added around Rs 2.9 trillion (20 percent of the increase) in public debt. It is important to highlight here that this increase was not due to borrowing but due to the re-valuation of external debt in terms of rupees after currency devaluation.
Financing of Primary Deficit: The impact of economic slowdown due to the Covid-19 pandemic mainly resulted in higher than estimated primary deficits. Rs 3.5 trillion (23 percent of the increase) was borrowed for the financing of the primary deficit.
Cash Management & Others: Rs 1.0 trillion (7 percent of the increase) was on account of increased cash balances of the government to meet emergency requirements as well as due to difference between the face value (which is used for the recording of debt) and the realized value (which is recorded as a budgetary receipt) of government bonds issued during this period. The government took the revolutionary and economically sound step of not borrowing from the SBP and maintaining a cash buffer, which led to a one-off increase in debt. However, this increase in debt was offset by corresponding increase in the Government’s liquid cash balances.
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Commission constituted: Forensic audit to be conducted to probe Rs24,156 billion debt
ISLAMABAD: On the directives of Prime Minister Imran Khan, the Cabinet Division on Friday constituted a commission to probe significant accumulation of debt by Rs24,156 during 10 years. The commission will conduct forensic and special audit to investigate the matter.
Hussain Asghar has been nominated as chairman of the commission. The commission will conclude its findings and give final report in six months.
The Commission shall comprise the following:-
i. Hussain Asghar (Retired PSP BS-22 Officer, currently serving as Deputy Chairman, National Accountability Bureau: Chairman
ii. Representative of the NAB: Member
iii. Representative of the FIA: Member.
iv. Representative of the Intelligence Bureau: Member.
v. Representative of the ISI: Member.
vi. Representative of the SBP: Member.
vii. Representative of the SECP: Member.
viii. Representative of the FBR.
ix. Representative of the Accountant General Pakistan Revenue: Member.
x. Representative of Military Intelligence: Member.
xi. Special Secretary, Finance Division: Member/Secretary.
The commission shall be further empowered to co-opt/ engage any person from the public or private sector, locally or abroad as a member, consultant or adviser for the assistance of the commission.
The Terms of Reference of the Commission of Inquiry shall be as per following:-
a. Determination of signification of major infrastructure of public sector development works conducted from the years 2008 to 2018, and commensurate them with the increase in public debt from Rs.6,690 billion in 2008 to Rs.30,846 billion till September, 2018.
b. To inquire/investigate about the award or implementation of any contact/agreement or project and whether any debt was taken for a particular project/undertaking and the same was then spent/expended on the corresponding project/undertaking, or, otherwise?
c. Whether the terms and conditions of any public contract were tainted or benevolent or artificially inflated to facilitate any kickbacks? If so, in whose favour?
d. Whether any holders of public office or their spouses, children and any persons connected to them expended any public funds so as to meet personal or private expenditures, beyond what has been permitted under the law and rules?
e. Whether the cap prescribed under the Fiscal Responsibility and Debt Limitation Act, 2005 (hereafter: “the 2005 Act”) has been busted? If so, the reasons and justifications thereof?
f. Whether the amendments, if any, in the 2005 Act were in keeping with the spirit of Article 166 of the Constitution, or, otherwise?
g. Forensic and special audits be conducted through any reputed international or local auditor or set of auditors in order to determine the real nature, scope, volume, cost and trail of the investments or expenditures of the Federal Government (or any part thereof) from February 2008 to September 2018.
h. To fix responsibility in respect of the above, and to refer any irregularity or illegality found for investigation and prosecution to relevant agency/department.
An appropriate budget shall be sanctioned, which the Commission shall be entitled to utilize and spend in its discretion so as to meet the expenditure of the Commission, said a notification.
The Commission shall give its final report within 6 months of its formation, with periodical interim reports on monthly basis.
The time limit mentioned above may, however, be extended with the prior approval of the Prime Minister.