Pakistan's external and domestic debts increased by $1 billion and Rs 772 billion respectively during the first quarter of the current financial year, reveals Debt Policy Co-ordination Office, Ministry of Finance, in its fiscal policy statement 2016-17. The significant rise in external public debt is attributed to mobilisation of US$1.83 billion mainly from commercial banks (US$900 million).
Bilateral sources contributed US$423 million (China accounted for US$405 million and IMF US$102 million) and multilateral development partners disbursed US$405 million. The government repaid US$1.08 billion during the first quarter of 2016-17. Domestic debt recorded an increase of Rs 772 billion during the first quarter of 2016-17. Pakistan's domestic interest payments constituted around 72 percent of total debt servicing due to increasing volume of domestic debt in overall public debt portfolio. Domestic debt servicing revealed that large portion was paid against PIBs Rs 483 billion, followed by treasury bills Rs 175 billion, market related treasury bills Rs 163 billion, Bahbood Saving Certificates Rs 93 billion and Special Savings Certificates and accounts Rs 71 billion.
The statement acknowledges that the Fiscal Responsibility and Debt Limitation (FRDL) Act, 2005 requires federal government to reducing total public debt and maintain it within prudent limit of 60 percent by 2017-18. However, gross public debt was recorded at 66.5 percent of GDP while net public debt stood at 60.2 percent of GDP as at end June, 2016. Public debt to GDP ratio witnessed increase in 2015-16 but the government stated that it is committed to reduce public debt to 60 percent of estimated GDP by 2017-18, and thereafter a 15-year transition has been set towards a debt-to-GDP ratio of 50 percent.
Gross public debt was Rs 20,538 billion as at end September 2016, while net public debt was Rs 18,278 billion. The government domestic borrowing for financing of fiscal deficit was Rs 369 billion during the said period. This differential is mainly attributed to an increase in government credit balance with State Bank of Pakistan/commercial banks during the first quarter of 2016-17 which was mostly utilised by the government in October 2016.
The policy statement claims that an improvement was observed in most of the public debt risk indicators during the last three fiscal years in line with the objectives set forth in Pakistan's first Medium Term Debt Management Strategy (2013).
Refinancing risk of the domestic debt portfolio declined through lengthening of the maturity profile as percentage of domestic debt maturing in one year was reduced to 51.9 percent at the end of June 2016 compared with 64.2 percent at the end of June 2013.
The government updated its Medium Term Debt Management Strategy (2015/16-2018/19) as the macroeconomic realities have changed since 2012-13. While it incorporates the new economic realities such as new market conditions and the overall economic cycle yet it focuses on the same principles as laid out in the first MTDS (2013) ie the guiding principle remains lengthening of the maturity profile of domestic debt and mobilisation of sufficient external inflow in the medium term while making appropriate trade-offs between the cost and risks. Encouragingly, the public debt risk indicators have improved during all four quarters of 2015-16 and are on track to achieve the targets set under the updated MTDS, the statement contends.
The public debt is defined as the debt of the government (including federal government and provincial governments) serviced out of consolidated fund and debt owed to the International Monetary Fund (IMF). Gross public debt was Rs 19,678 billion as of end June 2016 while net public debt stood at Rs 17, 825 billion.
Although government has been able to contain the fiscal deficit, increase in public debt was higher than financing of fiscal deficit during 2015-16, the policy statement further notes. Apart from the fiscal deficit, increase in the government credit balances with State Bank of Pakistan (SBP)/commercial banks, debt from the IMF and dual revaluation loss on account of depreciation of US Dollar against other foreign currencies as well as depreciation of the Pak rupee against the US dollar contributed to the increase in public debt. The cumulative growth in external public debt was around 6.2 percent during last three years (2013/14-2015/16).
The average cost of the external loans obtained by present government comes to around 3 percent of GDP ( GDP was specified in the statement), which is significantly lower than the domestic financing cost even after one builds a margin of capital loss due to exchange rate depreciation.
In rupees term, external public debt as a percentage of GDP declined from 21.4 percent in 2013 to 20.4 percent in 2016, the statement maintains.
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