Public Debt Level Increased Due To Domestic and Foreign Borrowings
Public Debt Level Increased Due To Domestic and Foreign Borrowings: The debt stood at Rs20.767 trillion on June 30, 2017. A major jump in the public debt levels was driven by increasing domestic and foreign borrowings amid hefty twin deficits.
The State Bank of Pakistan (SBP) data revealed that the government continued to rely on the domestic sources of borrowing, especially commercial banks. The domestic debt surged to Rs16.4 trillion at the end of May from Rs14.8 trillion as on June 30, 2017. Almost the entire increase in domestic debt came from short-term debt. However, the long-term debt stock showed a decline during the period under review, according to the composition of domestic debt.
The short-term debt, including shorter tenor instruments mainly market treasury bills, rose to Rs8.9 trillion at end-May, compared with Rs6.5 trillion by the end of June last year. However, the long-term debt registered a decrease, amounting to Rs7.7 trillion against Rs8.2 trillion in June 2017.
The government borrowed Rs4.081 trillion from commercial banks through treasury bills as of May 31, 2018, compared with Rs4.082 trillion in June last year. The stock of public external debt increased to Rs7.3 trillion, compared with Rs5.9 trillion as of June 30, 2017.
The increase in foreign debt signifies higher borrowings from the external sources, including foreign commercial banks and multilateral donors. A rating agency in its latest statement issued last week said Pakistan’s declining foreign exchange reserves and widening current account deficit are adding to the country’s external financing risks.
“Further and considerable policy efforts would be required to stabilise the external position, and a new government has limited time to act after the July 25 elections, as external debt obligations will pick up more rapidly in 2019,” Fitch Ratings said.
“Loose fiscal policy has added to imbalances. The fiscal deficit is likely to rise to around six percent of GDP in FY18, compared to our January forecast of five percent, and the government is becoming increasingly reliant on external borrowing — particularly from Chinese policy banks.”
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