PDM govt borrowed Rs907b in just one month

Major surge in debt came on external front with release of blocked financing

ISLAMABAD:

The Pakistan Democratic Movement (PDM) government added Rs907 billion to public debt in its last month in power, taking total debt to Rs19.4 trillion that it acquired during its 16-month rule.

The State Bank of Pakistan (SBP) reported on Tuesday that the federal government’s debt increased to Rs61.8 trillion by the end of July 2023, which was Rs907 billion higher than the preceding month.

A major surge in the public debt was on the external front after blocked financing lines were opened due to a deal between Pakistan and the International Monetary Fund (IMF).

Fresh numbers show that the total amount added by the PDM government to the debt stock stood at Rs19.4 trillion in a span of just 16 months. During its tenure, there was an increase of 43.6% in the total public debt.

The public debt had been Rs44.4 trillion in March 2022. Federal government debt, which is the direct responsibility of the finance ministry, jumped to Rs61.8 trillion by the end of July 2023.

The public debt has been multiplying at an unsustainable pace due to uncontrolled expenditures, below-potential revenue collection from sectors like real estate, services and agriculture, and the sinking rupee against the dollar.

The government of former prime minister Imran Khan had added Rs18.1 trillion to the public debt during its 44-month rule, a threshold that the administration of PM Shehbaz Sharif exceeded in just 16 months.

Steep currency depreciation also contributed to the federal government debt, although there was no major change in the rupee-dollar parity by the end of July that stood at Rs286.66 per dollar.

External debt of the federal government rose at an alarming pace of 48% to Rs22.8 trillion in 16 months. There was a net increase of Rs7.8 trillion in the external debt, largely due to currency depreciation.

At the end of March 2022, the external debt stood at Rs14.9 trillion, excluding the IMF’s liabilities.

Pakistan received major loans from multilateral and bilateral creditors in July. Some of that financing is not recorded on the books of the federal government and a complete debt position will emerge once the central bank releases the first-quarter debt bulletin.

The federal government’s total domestic debt increased to Rs39 trillion, an addition of Rs11 trillion (or 39%) in the past 16 months. When Imran Khan left the government, the domestic debt had been Rs28 trillion.

The share of external debt in the total debt is nearly 37% and any movement in exchange rate leaves a major impact without even borrowing a single dollar.

In March 2022, the rupee-dollar parity was at Rs183.5, which depreciated to Rs286.66, a drop of Rs104, or 57%, in just 16 months. Such a large and steep depreciation also fueled inflation in the country. The rupee further sank to Rs307 to a dollar on Tuesday.

A direct consequence of the mounting debt is a huge increase in the cost of debt servicing. The debt servicing is expected to stay above the budgeted figure of Rs7.3 trillion during the current fiscal year.

During the past four years of the IMF programme, Pakistan failed to increase the tax-to-GDP ratio that further deteriorated despite being a priority of the IMF and the World Bank. The Federal Board of Revenue (FBR)’s tax-to-GDP ratio stands at 8.6%.

In last meeting of the apex committee of the Special Investment Facilitation Council (SIFC), the army chief advised the finance minister to restructure the FBR without the involvement of officers of the Pakistan Customs and the Inland Revenue Services, said the sources.

Interim Prime Minister Anwaarul Haq Kakar said last week that he was searching for a new chairman of the FBR.

However, there is little focus on curbing federal expenses in areas that fall within the provincial domain. The caretaker government on Monday took back the responsibility of the $1.8 billion polio eradication programme, which the previous government had handed over to provinces.

Published in The Express Tribune, September 6^th, 2023.

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