Crushing debt

Pakistan's national debt has reached unprecedented levels, posing a significant threat to the country's economy and financial stability. According to a recent report by the Finance Ministry, our public and guaranteed debt has surged over 12% in a year, to a record Rs74.6 trillion by the end of June.

The alarming increase in debt burden is a matter of grave concern and demands immediate attention from policymakers and authorities. The report highlights the inherent risks associated with the current debt situation, emphasising that in the event of any new macroeconomic and fiscal shock, the debt and financing needs would escalate to unsustainable levels. This poses a direct threat to the stability of the country's economy and raises concerns about its ability to meet its financial obligations in the long run. The sustainability of Pakistan's debt profile is particularly worrisome, given the high proportion of external and floating-rate domestic debt. One of the most alarming aspects of the report is the trend of total public debt burden, which increased by Rs8.2 trillion, or 12.3%, during the past fiscal year, equating to 70.5% of the GDP. This far exceeds the debt-to-GDP ratio recommended by the Debt Limitation Act, which specifies that the ratio should have been below 57.5%. The high debt-to-GDP ratio is unsustainable without a booming economy, which we do not have, and also increases the government's total financing requirements.

The Finance Ministry report also emphasizes the need to address factors that could further exacerbate the debt situation, including lower-than-expected economic growth, a rise in the primary deficit, an increase in real interest rates, surge in contingent liabilities and exchange rate depreciation. Efforts to address the debt must be focused on implementing sound fiscal policies, improving revenue generation, reducing unnecessary expenditures, and exploring avenues for sustainable economic growth. These factors, if not carefully managed, could significantly increase public debt and gross financing needs, posing a severe risk to the stability of the country's finances.