World Bank sees Pakistan’s debt-GDP ratio declining

The World Bank has projected that Pakistan’s debt-to-GDP ratio will ease to 90.6% in the current fiscal year and to 89.3% in the next fiscal year 2022-23.

The World Bank in its recent report ‘Pakistan Development Update October 2021’ said that the total debt-to-GDP ratio had peaked at 92.7% the last fiscal year 2019-20, however it had been declining since then.

The public and publicly guaranteed debt declined to 90.7% of the GDP [gross domestic product] in end-June FY21, down from 92.7% in end-June FY20, according to the report.

In the end-June FY21, external debt accounted for 33.9% of the total public debt, whereas short-term debt accounted for 16.2%– indicating low rollover risks, the report added.

The public and publicly guaranteed debt included external general government debt, domestic general government debt, guaranteed debt, and public and publicly guaranteed debt. The report said the rupee had already depreciated by 7.7% against the US dollar over the first quarter of FY22.

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Given that external public debt was a-third of the total public debt stock, the depreciation of the currency had implications for public debt, which was already above 90% of GDP.

Meanwhile, the report said that in FY21, the fiscal deficit (excluding grants) narrowed to 7.3% of GDP from 8.1% in FY 20, as revenue growth, underpinned by stronger domestic activity, outpaced higher expenditures.

Furthermore, it added that despite fiscal consolidation efforts, the deficit (excluding grants) was projected to remain high at 7.1% of GDP in FY22 and widen to 7.2% in FY23 due to pre-election spending.

Implementation of critical revenue-enhancing reforms, particularly the harmonisation of the general sales tax, would support a narrowing of the fiscal deficit over time. Public debt would remain elevated in the medium-term, as well as Pakistan’s exposure to debt-related shocks.

The report also projected Pakistan’s poverty rate to ease in the coming years. Bolstered by the recovery in the industry and services sectors and resultant off-farm employment opportunities, poverty incidence was expected to decline to 4.8% in FY21 from 5.3% in FY20, it added.