Debt servicing economy’s biggest issue as public debt rises to over Rs39.5tr

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Debt servicing economy's biggest issue as public debt rises to over Rs39.5tr

DNA

LAHORE: The governments’ borrowing policy over the last decade has brought the country to the brink, as the debt servicing has now become the biggest challenge on expenditures front in the federal budget in the wake of huge domestic and foreign borrowings, as Pakistan’s external public debt rose by $1.2 billion in six months to $86.35 billion as of Sept, 2023.

APBF president Syed Maaz Mahmood, quoting the data, pointed out that the external debt was recorded at $86.36 billion and domestic debt was recorded at Rs39.5 trillion of the total public debt at the end of Sept 2023. In its first quarterly report on Foreign Economic Assistance of the current fiscal year, the ministry said Pakistan had received total foreign inflows of $3.5b in July-Sept 2023 against loan repayments of $1.5b, resulting in a net inflow of $1.97b.

APBF Chairman Ibrahim Qureshi observed that country’s fiscal policy over the past decade has focused primarily on macroeconomic stabilization in response to the financial crisis, calling for more emphasis on reforms to foster long-term inclusive growth by adapting to advancing technology and deepening global integration.

Ibrahim Qureshi said that reforms will require a growth-friendly budget, re-composition to upgrade tax, social spending, and active industrial policies in close consultation with the real stakeholders to achieve sustainable development goals.

The APBF President said that amid increasing discount rates that have now hiked to 22 per cent, Pakistan’s total debt and liabilities skyrocketed to Rs35 trillion, which is rising at high speed in the wake of a soaring budget deficit.

Syed Maaz Mahmood said that there was no justification for making changes in policy rate because it would further increase debt servicing requirements. The policy rate has gone up by 600 basis points and it seemed at only achieving stabilization and there was a significant increase in real positive interest rate.

Around 64 per cent of the total external public debt was obtained from multilateral and bilateral sources having concessional terms and longer maturity, the MEA added. As of September 30, 2023, the total external public debt of the government was $86.358bn, he said. The external public debt as of March 31, 2023 amounted to $85.18bn. In comparison, the country had received $2.2bn in loans and repaid $2.06bn during the same period last fiscal year (July-September 2022), leading to net addition of $142 million. The FEA report said Pakistan had signed new agreements worth $642m in fresh commitments during the first quarter of the year and all new commitments had been funded by multilateral development partners as international bonds and commercial loans could not be secured in view of adverse market conditions following poor credit rating and resultantly unaffordable interest rates.

Out of these $642m commitments, 69pc was for project financing, only 15pc as program financing, and 16pc as commodity financing as top priority was for securing financing for mitigation of the devastating effects of 2022 floods. During July-September 2023-24, disbursements of $3.538bn were mainly under the project and program loans and grants from multilateral development partners, bilateral development partners and financial institutions.

According to the Debt Policy Statement, around 58 percent of financing of federal fiscal deficit was carried out through domestic sources and 42 percent from external sources.

The government retired around Rs452 billion of stock of short-term debt (T-Bills) and issued Rs2.2 trillion of Pakistan Investment Bonds against the maturity of Rs1.6 trillion and Rs657 billion of Ijara Sukuks against zero maturity. The external debt was recorded at $84.1 billion (38 percent) and domestic debt was recorded at Rs38.81 trillion of the total public debt at the end of June 2023.