Islamabad:
Public debt has jumped to a new record on the RS80.5 trillion at the end of the June-one addition of RS25.4 billion per year. Day, violating a parliamentary act and further weakening the government’s debt -bearing capacity, revealed official statistics.
The State Bank of Pakistan (SBP) has released Debt Bulletin for the financial year 2024-25, which showed that public debt increased both in absolute terms and in relation to the size of the economy, a deadly combination that emphasizes the country’s very unsustainable debt.
By the end of June, gross public debt rose to RS80.5 trillion, RS9.3 trillion or 13% higher than the burden in the previous financial year, according to the central bank’s debt bolt. On average, the government added RS25.4 billion every day under FY25. The report stated that gross public debt with regard to the size of the economy increased from 67.8% of GDP to 70.2%. Under the law on fiscal liability and debt limitation, the government is obliged to reduce debt by 0.5 to 0.75% of GDP each year until it reaches 50% in 2032-33. However, the coalition government has violated the law.
The high debt has little room to spend on productive sectors in the economy, with almost half of the budget consumed by interest payments. Despite this, there is still a strong desire in official circles to spend more on mega projects, especially those who carry political benefits due to pressure from coalition partners.
Including all of the Pakistan’s total debts and obligations to RS94.2 trillion at the end of June, corresponding to 82.1% of GDP, according to the central bank.
The rising debt burden in absolute and GDP conditions also reflects poorly at the International Monetary Fund (IMF), which has not been able to ensure sustainable fiscal discipline. This debt limit with higher than a statutory indicates that Pakistan’s debt burden is unsustainable. However, the IMF continues to declare it sustainable to avoid the need for immediate domestic and foreign debt structure. The significant increase in public debt was primarily due to funding the federal tax deficit, where interest expenses were an important component. As a result, Pakistan’s financing requirements remain at unsustainable levels ranging between 20% to 23% of GDP. For a developing country like Pakistan, financing needs of 15% of GDP are considered manageable.
The central bank report showed that the government’s domestic debt jumped from RS47.2 trillion to RS54.5 trillion in a financial year, an increase of RS7.3 trillion or 15.5%. Pakistan’s domestic debt grew three times faster than the economy and inflation. The government’s external debt rose from RS21.8 trillion to RS23.4 trillion – a jump on RS1.7 trillion – despite the local currency that is virtually stable.
Pakistan’s external debt is mostly achieved from concessions bilateral and multilateral sources. However, the growing proportion of short -term debts in recent years poses risk of debt bearability due to high refinancing risks, which further increases the gross financing needs. Within the external debt portfolio, fixed debt draws about two -thirds of the total external debt.
Pakistan’s fiscal position always remains vulnerable to shock, with the country at the moment to one of the worst floods in its history that will have consequences for both the primary balance and public debt.
A report on the Ministry of Finance stated that due to limited fiscal space, a sudden shift in the primary balance could not be excluded. If a shock pushes the primary deficit close to historical levels, debt-to-BNP ratio will exceed 70% benchmark, which further risks debt sustainability, according to the Debt Office Report from August last year.
The central bank report also noted that debt from the IMF increased by 13% to RS2.63 trillion by June this year. Pakistan is currently using an IMF Bailout package of $ 7 billion – the 25th program – with the aim of ensuring fiscal and external stability.
High debt has resulted in increasing debt costs. SBP said the country used RS13.2 trillion on repayment of maturation of loans and interest costs in the last financial year, an increase of 10% or RS1.2 trillion compared to the previous year. Interest payments only consumed RS9.5 trillion in the last financial year. Pakistan also paid RS162 billion, or $ 570 million, in interest in the IMF under FY25.
Overall, Pakistan’s external debts and dollars obligations rose to $ 135 billion in June with an addition of $ 4 billion in a financial year. Compared to previous years, the pace of external debt growth was slower due to the central bank’s decision to buy over $ 8 billion from the local market.
