While Pakistan’s public debt expanded by 13.1% to cross the Rs10 trillion mark by end of the March 2011, the country’s debt-to-GDP ratio, a measure of the degree of indebtedness of the economy, declined as the country benefited from a stable exchange rate and made repayments on its foreign debt.
The ratio of the country’s total debt to the size of its economy declined to 55.5% by the end of March 2011 compared to 60.2% at the close of the fiscal year ending June 30, 2010. The decline came despite the fact that total debt, both local and foreign, expanded. However, Pakistan benefited from a stable exchange rate, which reduced the relative size of the foreign debt compared to the gross domestic product.
While Pakistan’s debt has been steadily rising throughout the last two decades, the country’s total levels of indebtedness have continued to fall since the late 1990s. In 1990, Pakistan’s debt to GDP ratio was 91.7% and as late as 2000, it was as high as 78.9%.
The reduction in the ratio is due to the fact that Pakistan’s economy has grown faster, in nominal terms, than its total debt burden.
Pakistan owed a total of $59.5 billion (Rs4,559 billion) in its total external debt and liabilities while it owed Rs5,461 billion in rupee-dominated debt to local creditors by the end of March 2011.
The government paid $7.8 billion in foreign debt servicing during the first nine months of the current fiscal year (compared to $5.8 billion during all of last year), of which $6.2 billion was repayment of the principal amount (the rest being interest payments). The federal government has paid a further Rs457 billion ($5.4 billion) in just interest payments on the local currency debt.
Of the Rs525 billion in new lending in the banking sector, over 65% went towards the government, leaving relatively little room for private businesses to borrow, preventing them from expanding their business lines.
Published in The Express Tribune, June 3rd, 2011.
The full text of The Economic Survey 2010-2011 can be viewed here.