Resultantly, the TDL stock to gross domestic product (GDP) ratio worsened from 60.5 per cent in financial year 2007 to 69.5 per cent in FY10. With this increase in the debt burden, the Fiscal Responsibility and Debt Limitation Act 2005 criterion for sound debt management was breached for the third consecutive year during FY10.
Domestic debt
In FY10, the country relied more on domestic debt sources to finance the fiscal deficit. This was caused by both lower-than-targeted external loan inflows as well as maturity of Sukuk bonds worth $600 million during the year.
Given the challenges faced by the economy, the debt profile is likely to remain under pressure during FY11 as well. The scale of demand from the government is such that despite external assistance, greater burden for funding will have to be borne by domestic debt sources.
Thus, excessive financing pressures during FY11 are likely to create additional risks for the fragile economic recovery observed in FY10 and demand stern fiscal prudence during the upcoming year.
External debt
Total external debt and liabilities (EDL) rose by 6.3 per cent or $3.4 billion. The increase in the EDL largely owes to inflows from the IMF under standby agreement.
While the stock of EDL increased in absolute terms during FY10, it declined to 32.4 per cent as proportion of GDP from 33.4 per cent in the previous year.
The stock of foreign private loans registered a net decline of $164 million in FY10 over stock of FY09. The stock of foreign exchange liabilities recorded a 12 per cent decline in FY10 compared to 1.7 per cent decline in the previous year.
External debt and liability servicing stood lower at $4.4 billion at end-June 2010 as compared to $4.7 billion last year.
Published in The Express Tribune, October 26th, 2010.
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