“This increase in the stock of public debt is significantly lower than the rapid increase of 22 per cent in the previous fiscal year,” read the Economic Survey 2009-10 which was released on Friday, a day before the announcement of budget.
Policy responses in FY10, a withdrawal of pressure on the external account and a relatively stable exchange rate, in addition to a limit on borrowing from the central bank, have all helped stem the rapid increase of public debt witnessed in FY09.
The public debt this year includes the funds obtained from the International Monetary Fund (IMF) until March 2010, the survey said.
The domestic currency component increased by Rs631 billion or 16.3 per cent to Rs4,491 billion in comparison to Rs3,860 billion at end-June 2009. This increase accounted for 71 per cent of the aggregate increase in total public debt.
It is interesting to note that in contrast to FY09, the increase in the stock of public debt during the current year has mostly been through domestic sources.
Out of the total increase in debt, Rs148 billion or 17 per cent is attributed to depreciation of the national currency against the US dollar during July-March 2009-10 as the rupee lost 4.2 per cent of value during this period.
The quantum of increase on the domestic front in the first nine months of 2009-10 is nevertheless alarming. The resurgence of SBP borrowing in the last two months of the third quarter has been the principal source.
However, with the government’s commitment to adhere to net zero quarterly borrowing limits, this rising trend in the stock of central bank debt is expected to stabilise by the end of this fiscal year.
Servicing of public debt has aggregated to Rs640.2 billion at end-March 2010. As percentage of the projected GDP for 2009-10, the public debt servicing is now 4.4 per cent.
Interest payments of Rs428.5 billion have been incurred on domestic debt, whereas Rs45 billion of the payment was on account of foreign debt. Huge repayments of about Rs166.7 billion were made to retire the maturing foreign currency debt.
Almost 46 per cent of the government revenues have been used to service interest and principal payments of public debt during July 2009 to March 2010.
At the end March 2010, the outstanding stock of domestic debt stood at Rs4,490.7 billion. Furthermore, during the first nine months of the current fiscal year 2009-10, Pakistan’s external debt and liabilities increased by $2 billion or 3.8 per cent, the survey said.
The outstanding stock as of end-March FY10 stood at $54 billion as opposed to $52 billion at the end of FY09.
Based on the projections for the end of FY10, Pakistan has one of the highest public debt-to-GDP ratios amongst emerging economies.
For 2009-10, this ratio in percentage terms rested at 55.6 per cent as of March 31. The ratio has declined by 1.5 percentage points from the previous fiscal year, which has mainly been achieved on account of slow-moving external inflows, the survey added.
Published in the Express Tribune, June 5th, 2010.
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