Pakistan''s External Debt and Liabilities (EDLs) increased from $55.9 billion in June 2010 to $59.5 billion in March 2011 depicting an increase of $3.6 billion while total foreign assistance received during the first nine months of the current fiscal year stood at $1.4 billion against commitments of $2.84 billion, the Economic Survey 2010-11 revealed.
According to the Survey, External Debt & Liabilities (EDLs) of Pakistan increased from $37.9 billion at end-June 2000, to $55.9 billion by the end of June 2010, and stood at $59.5 at end-March, 2011. During the same period, EDLs as a percentage of GDP decreased by 23.5 percentage points of GDP, falling from 51.7 percent on end-June 2000 to 28.2 percent by end-March 2011.
The Survey reveals that the IMF Stand-by Arrangement (SBA) programme has enabled Pakistan to shore up foreign exchange reserves and prevent the economy from any further depreciation, but it has also translated into a significant increase in outstanding external debt. The total amount of foreign economic assistance received in the first nine months of 2010-11 stood at $1,409 million.
The commitments of foreign economic assistance were $6,171 million during 2009-10, while during July-March 2010-11, total commitments amounted to $2,845 million. About 65.4 percent of the total commitments during July-March 2010-11 were from bilateral sources while 34.6 percent was from multilateral sources in the shape of project aid and non-project aid. The share of BOP/budgetary support in total non-project aid was 85 percent. The project aid accounted for 98 percent of commitments.
Disbursement of foreign economic assistance during 2009-10 stood at $3,667 million but decreased to $1,409 million during July-March, 2010-11. During this period, disbursement for the project aid amounted to $725.7 million or about 51.5 percent of the total disbursements.
An amount of $683 million was disbursed for non-project aid claiming about 48 percent of total disbursements. Public and publicly guaranteed debt accounts for the largest share of 76.6 percent in EDLs. This component is further classified into medium to long-term debt and short-term debt. During the first nine months of 2010-11, public and publicly guaranteed debt has increased by 5.8 percent or $2.5 billion, rising from $43.1 billion at end-June 2010 to $45.6 billion by end-March 2011.
Medium and long-term debt increased by $2.3 billion during the same period. Short-term debt increased from $793 million at end-June 2010 to $916 by end-March 2011. This increase of $123 million is on account of rollover of existing stock of by the Islamic Development Bank (IDB) debt.
Total public debt increased by Rs 1162 billion in the first nine months of 2010-11, reaching a total outstanding amount of Rs 1,002,0 billion - an increase of 13.1 percent in nominal terms. The primary source of increase in public debt during July-March, 2011 has been a sharp rise in local currency component that accounted for 69.7 percent of the total increase in total public debt. This was primarily due to the slower disbursement from multilateral and bilateral donors and higher than budgeted fiscal deficit.
The external debt component grew by Rs 275 billion or 6.4 percent partially due to increased foreign public debt inflows and partly because of cross-currency translation effect. Public debt as percent of GDP declined to 55.5 percent by end-March 2011 after hovering around to 60 percent of GDP for two years.
At the end-March 2011, debt owed to the IMF aggregated to $8.9 billion (a growth of 10.7 percent) out of which US $1,979 million accrued to the federal government. The remaining IMF funds were recorded on SBP books to strengthen the foreign exchange reserves of the country. During the current year, IMF gave $452 million as Emergency and Natural Disaster Assistance (ENDA).
Excessive increase in debt has caused problems for Pakistan in the past, while imprudent domestic borrowing plagued the economy during 2010-11. Prudent and efficient debt management is required not only to ensure that present debt levels are kept under control, but also manage future repayment obligations.
The Survey reveals that the current fiscal year carried the legacy of high fiscal account deficits mainly driven by overrun in security related spending and revenue shortfalls owing to weaker economic activities. Stable exchange rate has helped lower incidence of external debt in relation to GDP.
On the internal front, borrowing from the State Bank of Pakistan continued to create problems in the first half of 2010-11 but the January-March quarter witnessed retirement of SBP debt stock. The external sector remained comfortably placed as current account recorded surplus in July-April 2010-11 and thus haemorrhaging of foreign exchange reserves was not only arrested but reserves crossed $17.0 billion mark.
Inadequacy of external flows put onus of financing fiscal deficit on domestic sources of financing. The domestic debt stock piled up by Rs 803.9 billion in July-March 2010-11. The debt servicing obligations started building up from 2008-09 and reached to $5.8 billion in 2009-10. Moreover, relatively high amount of $7.8 billion has been paid during July-March 2010-11, which implies an increase of over one billion dollars in servicing in one year. Out of this amount, $6.2 billion was paid on account of repayment of principal amounts.
Due to sustainable debt policies and favourable rescheduling of debt, EDLs as a percentage of GDP declined from 51.7 percent in end-June 2000 to 31.6 percent by the end of June 2010, a decline of 20.1 percentage points. By end-March 2011, EDLs as a percent of GDP stood at 28.2 percent, thereby showing a decrease of 3.4 percentage points in one year. This improvement is mainly due to faster growth in nominal GDP in relation to slower growth in external debt. The domestic borrowings has inched up its share from 48.9 percent in 2001-02 to 54.5 percent at end March 2010-11.
The total domestic debt is positioned at Rs 5462.2 billion at end-March 2011, which implies net addition of Rs 803.9 billion in the nine months of the current fiscal year. In relation to GDP the domestic debt stood at 30.2 percent of GDP which is lower than end-June 2010 level at 31.4 percent. The domestic debt grew by 17.3 percent, which is lower than last years'' growth of 20.7 percent.
During July-March, 2011, the floating debt grew by 19 percent. Around 56.6 percent of the total increase in government debt stock was contributed by floating debt instruments during July-March, 2011. The wide array of instruments that fall under the National Savings Scheme is referred to as unfunded debt. The stock of unfunded debt stood at Rs 1599.5 billion on end-March 2011, having increased by Rs 142.3 billion or 9.8 percent in nine months as compared to 14.7 percent in fiscal year 2010.
Special NSS instruments (Bahbood Savings Certificates and Pensioner''s Benefits Accounts) exhibited a tedious performance as Rs 59 billion were mobilised in July-March 2011 as compared to Rs 77.4 billion in 2009-10. Rates of return on NSS instruments were revised upwards in October 2010 and January 2011 in response to an increase in the benchmark discount rate. The Survey disclosed that given the performance and prospects of oil and gas sectors of Pakistan, the government is closing an OGDCL exchangeable bond of $500 million before the end of this fiscal.
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