ISLAMABAD:
The coalition government managed to add a net 7.2 trillion rupees to its debt pile in the first seven months of this financial year alone – an average of 34 billion rupees a day. The accumulation of debt is now nearly three times the gap between federal revenues and expenditures.
The State Bank of Pakistan (SBP) on Tuesday released the central government’s debt bulletin till January 2023, showing the negative impact of a sharp devaluation on debt.
Federal government debt rose to about Rs 55 trillion at the end of January – up from Rs 7.2 trillion in the July 2022 to January 2023 period, according to the SBP statement. During this period, the debt burden increased by 15%, which is totally unsustainable for a country like Pakistan.
The development came as it was revealed that net federal revenue has been reduced by Rs 200 billion from total interest expenditure to Rs 400 billion. Net federal revenue for the current fiscal year is estimated at 5 trillion rupees, and last month the cabinet approved a revised interest expenditure bill of 5.2 trillion rupees for the fiscal year 2022-23, which ends in June.
This is the first time that net income is less than the cost of servicing debt. All defense budgets and civilian government expenditures are now covered by new loans. Net income is calculated after paying provincial shares of federal taxes.
The Pakistan Democratic Movement (PDM) government added an average of Rs 34 billion a day to its debt burden during this period. However, the increase was due to currency depreciation rather than budget deficit financing.
According to the Finance Ministry, the federal budget deficit remained at Rs 1.8 trillion in the first six months of the current fiscal year. According to sources, there was no phenomenal increase in the deficit that widened at normal average levels in January.
This is the first bond issue issued by the central bank since the federal government allowed the rupee to depreciate on January 26. The government has decided to allow market forces to determine the value of the rupee to convince the International Monetary Fund (IMF) to free up days for staffing.
The average exchange rate on the last day of the 2022 fiscal year was 204.4 rupees, depreciating by 31% in seven months to close at 267.9 rupees per dollar on January 31, according to the central bank. The rupee is currently trading at around Rs 278 per dollar.
This had a major impact on the government’s external debt calculation, which rose at an alarming rate from 23.5% to 20.7 trillion rupees in seven months. External debt rose by a net 3.9 trillion rupees, mainly due to currency depreciation.
According to the Debt Policy Statement released by the Finance Ministry last month, public debt rose by 9.4 trillion rupees in the last financial year, with 3.8 trillion rupees or 40.3% due to currency depreciation. . The rupee depreciated by about 30% against the dollar in the last fiscal year, increasing Pakistan’s external debt in rupee terms.
Due to a combination of factors, including currency depreciation, the national debt remained above the statutory limits set under the Fiscal Responsibility and Debt Limitation Act of 2005. A finance ministry report last month put the debt burden at 10.4 trillion rupees higher. legally permissible limit, which makes it unstable.
The threshold of 58%, considered stable, was breached by 15.5% of GDP or 10.4 trillion rupees.
The foreign exchange risks of the public debt have increased tremendously, as the share of external debt in the total public debt continues to grow despite the drying up of external financing channels.
The IMF’s debt bulletin showed that domestic debt rose to 34.3 trillion rupees at the end of January 2023 from 31 trillion rupees in June last year. Domestic debt rose by 3.2 trillion rupees, or 10.7%, in the current fiscal year. Although domestic debt is mainly used to finance the budget deficit, its size is still larger than the total federal budget deficit.
Published in The Express Tribune on March 8th2023.
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