Pakistan records 40% increase in public debt & liabilities

The cash-strapped Pakistan government has recorded a near 40 per cent increase in public debt and liabilities in the last 15 months, according to a media report on Saturday.

The finance ministry conceded major violations under the Fiscal Responsibility and Debt Limitation Act (FRDLA), presenting a debt policy statement in the Parliament on Friday.

Total debt and liabilities stood at Rs 29.879 trillion at the end of fiscal year 2018, which crossed Rs 41.489 trillion at the end of September 2019, recording an increase of Rs 11.6 trillion or 39 per cent, Dawn News reported quoting the finance ministry report.

The report said the FRDLA required the federal government take measures to reduce fiscal deficit and maintain public debt within "prudent" levels.

The FRDLA was required to limit the fiscal deficit, excluding foreign grants, to 4 per cent of gross domestic product (GDP) during the three years -- beginning from financial year 2018-19 and maintaining it at a maximum of 3.5 per cent of the GDP thereafter.

"The federal fiscal deficit (excluding grants) was recorded at Rs 3,635 billion or 9.4 pc of the GDP during FY 2018-19, remaining higher than the threshold of 4 per cent," said the debt policy statement.

The ministry, however, justified this citing policy changes among other factors.

It said the one-off factors, which were not expected to carry over into FY 2019-20, contributed around 2.25 per cent of the GDP towards federal fiscal deficit.

These factors included delay in renewing telecom licences, delay in sale of envisaged state assets and weaker than anticipated tax amnesty proceeds contributed around 1 per cent of the GDP.

A shortfall in the transfer of State Bank profits contributed an additional 0.5 per cent of the GDP.

The policy statement said the law also required the government to ensure that within two fiscal years, beginning from the fiscal 2016-17, the total public debt shall be reduced to 60 per cent of the estimated GDP by end June 2018.

"However, total public debt to GDP ratio reached 72.1 per cent while total debt of the government to GDP ratio was 66.5 per cent. Total public debt and total debt of the government as percentage of GDP stood at 84.8 per cent and 76.6 per cent, respectively at end June 2019, thus, increasing further during the FY 2018-19," the finance ministry conceded.

Apart from fiscal deficit, it said, unprecedented revaluation loss on account of currency depreciation and build-up of liquidity buffer contributed significantly towards the increase in debt to GDP ratio during FY 2018-19.

The ministry also put on record that total debt and liabilities increased by 86.3 per cent of the GDP at the end of FY18 to 94.3 per cent of GDP at the end of September 2019.

It said the government's domestic debt increased by Rs 6.234 trillion or 38 per cent in 15 months (end-June 2018 to end-September 2019).

It said the government domestic debt that stood at Rs 16.416 trillion at end-June 2018 increased to Rs 20.73 trillion by end-June 2019 and reached Rs 22.65 trillion at end-September 2019.

The government's external debt during the 15-month period also increased by 36 per cent or Rs 2.8 trillion to Rs 10.598 trillion from Rs 7.796 trillion.

External liabilities on the other hand increased by 160 per cent to Rs 1.6 trillion by end of September 2019 from Rs 622 billion in June 2018, according to Dawn.

The Pakistan government has been implementing austerity measures to improve the country's finances. In July last year, Pakistan registered a currency reserve of less than USD 8 billion -- enough to cover only 1.7 months of imports.

In August 2018, Pakistan approached the International Monetary Fund for a bailout package after the Khan government took over.

The IMF formally approved the USD 6 billion loan to Pakistan in July 2019, citing "significant" economic challenges.

Pakistan has so far received billions in financial aid packages from friendly countries like China, Saudi Arabia and the UAE during the current fiscal year.