ISLAMABAD: The federal government’s debt that was Rs14.4 trillion exactly five years ago shot up by two-thirds to Rs23.8 trillion during the Pakistan Muslim League-Nawaz (PML-N) government’s tenure – the highest increase recorded in any government’s term since the creation of Pakistan.
The State Bank of Pakistan (SBP) on Monday released the debt data till May 2018, which also marked the end of five-year tenure of the PML-N government.
Since 1947, all successive governments, including the two PML-N administrations, took the central government’s debt to Rs14.4 trillion whereas the PML-N, in its last five-year tenure, added another Rs9.4 trillion, throwing the country into a deep debt trap.
The massive increase in the debt – precisely 65.5% over the level left by the previous government, speaks volumes about the poor economic management and lax fiscal policies of the PML-N administration. The Rs23.8-trillion debt is exclusive of all obligations that are not the direct responsibly of the finance ministry.
Uncontrolled expenditures, mainly non-development, increase in tax revenues at a snail’s pace and higher spending on debt servicing and defence are among main reasons behind the mushroom growth in the central government’s debt.
The higher spending on debt servicing and defence has left very little room for human development.
The mounting debt pile is one of the concerns expressed by the armed forces in recent months, which has allowed them to expand their footprint in the economic field, after defence and foreign affairs.
In the past five years, the federal government’s total domestic debt increased to Rs16.5 trillion, an addition of Rs6.93 trillion or 72%. Earlier, the domestic debt stood at Rs9.5 trillion.
During this period, the domestic debt structure underwent a drastic change, which exposed the finance ministry to refinancing risks. This also allowed commercial banks to exploit the federal government by not offering it long-term loans.
The share of short-term public debt remained at the same level of 54.5% in five years, although at one point it went as low as 37%. However, reckless borrowing in the last two years of PML-N government and banks’ refusal to provide long-term loans in the hope of higher interest rates increased the share of short-term debt.
In June 2013, the short-term domestic debt totalled Rs5.2 trillion or 54.5% of the total domestic debt. In the past five years, the short-term debt grew Rs3.8 trillion or 72.4% to Rs8.96 trillion. The rise was the result of growing dependence on borrowing through the sale of market treasury bills (MTBs).
Another reason for the high share of short-term debt was that the federal government started relying on the central bank for financing its deficit.
The change in the composition of domestic debt suggests that the government could not fully implement its second Medium-Term Debt Management Strategy 2016-19 that had been designed to increase the maturity profile to reduce the refinancing risk.
In five years, the long-term debt also increased by 73% to Rs7.5 trillion. In 2013, the long-term domestic debt was Rs4.3 trillion that saw an increase of Rs3.2 trillion in five years.
The permanent debt that was Rs2.2 trillion till June 2013 increased by 112% to Rs4.623 trillion.
Five years ago, the debt acquired through the sale of prize bonds was Rs390 billion that jumped 115% to Rs841.8 billion.
The central government’s external debt also recorded an increase of over 50% in five years. In June 2013, the external debt stood at Rs4.85 trillion that jumped to Rs7.32 trillion by the end of May 2018.
There was a net increase of Rs2.5 trillion in the external debt in five years. These figures do not include the debt of Rs691 billion taken from the International Monetary Fund (IMF), which is a responsibility of the central bank.
Published in The Express Tribune, July 10th, 2018.