Pakistan govt's debt swells to Rs 58.6 trillion

ISLAMABAD: The Pakistan government's total debt has increased 34.1 per cent year-on-year to Rs 58.6 trillion at the end of April, according to the latest report by the country's central bank.

The increase was 2.6 per cent on a month-on-month basis, Dawn newspaper reported on Tuesday. The domestic debt amounted to Rs 36.5 trillion (62.3 per cent) while the external debt accounted for a 37.6 per cent share with Rs 22 trillion at the end of April.

On an annual basis, the increase in external debt remained 49.1 per cent, the State Bank of Pakistan (SBP) data showed. There was no change in the external debt figure from a month ago.

Within the domestic debt, the largest share was of the federal government bonds that represented almost Rs25 trillion worth of loans. Other major contributors to the domestic debt were short-term loans (Rs7.2 trillion) and unfunded debt (Rs2.9 trillion) that included money borrowed through National Savings Schemes.

Funds obtained through federal government bonds rose 31.6 per cent from a year ago while the increase in the stock of short-term loans remained 29.4 per cent.

On the one hand, Pakistan is battling a prolonged balance-of-payments crisis, with foreign exchange reserves covering only a month’s import bill.

On the other hand, domestic debt servicing is becoming a huge challenge for the country given that interest rate has climbed to an unprecedented level amid record-high inflation.

According to Topline Securities CEO Mohammed Sohail, the mark-up expense in 2023-24 will alone be more than the federal budget of 2020-21.

''Interest on loans, mainly local debt, has more than doubled in two years,” he said, adding that the growing burden is preventing the government from spending on health, education and infrastructure.

Pakistan, currently in the throes of a major political as well as economic crisis, is grappling with high external debt, a weak local currency and dwindling foreign exchange reserves. The inflation level rose by a whopping 36.4 per cent in the year in April, driven mainly by food prices. This is the highest in South Asia, and up from 35.4 per cent in March, according to the country's statistics bureau.

Meanwhile, Pakistan has witnessed a fall of nearly 13 per cent in remittances sent from abroad in the first 10 months of the fiscal year due to the wide gap between the rates of the dollar in interbank and open/gray market.

Financial and exchange company analysts also blame the State Bank and Government for its faulty policies and for influencing the exchange rates which has seen a drop in remittances and even from even foreign companies with investments in Pakistan.

The Pakistan rupee lost more value to the US dollar soon after the market opened on Tuesday.

Zafar Paracha, the General Secretary of the national forex association, said that while the dollar was quoted at 285-286 in the interbank it was selling at around 310 to 314 rupees in the open market.

''Today the gray market rate of the dollar opened at 316 in the open market so how can the government convince overseas Pakistanis to send remittances through banking channels and bear the per dollar loss as rupees 20-22,” said Paracha.

Citing financial houses and investment companies, he said even foreign firms which had investments in Pakistan have been able to send only USD 253 million as profits during the first ten months of FY23, compared to USD 1.3 billion during the same period last year. Atif Mansoor, an analyst, said this withholding of profits is detrimental to foreign investment in Pakistan, which already stands as the lowest in the region. Paracha said that due to the growing gap between dollar rates in the interbank and gray market, the remittances had also fallen by 13pc during the 10 months of FY23.