The rising public debt burden

The public debt of Pakistan consists of the domestic and external debt of the government plus debt owed to the IMF (International Monetary Fund). Table 1 below shows that it has spiralled up from Rs 19.7 trillion in June 2016 to Rs 44.4 trillion by March 2022.

The cumulative increase is 126 percent, while the annual growth rate of the burden has been as high as 14 percent.

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                              Table 1
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       Level of Public DebtLevel of Public Debt per Capita
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                  Level of Public Debt    Public debt per Capital
                    (Rs in Billion)              (Rs)
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2015-16*              19,677                               99,328
2016-17               21,408                              105,562
2017-18               24,952                              120,134
2018-19               32,707                              153,770
2019-20               36,398                              167,116
2020-21               39,866                              178,771
2021-22 (March)       44,365                              195,440
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*This is the first year for which the GDP series with base year 
2015-16 is available.
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Source: SBP
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The per capita public debt burden has been rising exponentially. It was Rs 99,328 per citizen of Pakistan in 2015-16. By March 2021-22 the per capita burden has almost doubled to Rs 195,440. It is equivalent to over 69 percent of the average per capita income in the country.

What factors have contributed to the increase in the burden? Bulk, 97 percent, is in the form of government domestic and external debt. The remainder, 3 percent, is the debt owed to the IMF. Therefore, there is a need to identify the sources of the increase in government debt. These are interest payments on government debt, primary budget deficit and the increase in rupee value of the external debt due to exchange rate depreciation.

The cumulative contribution of each factor is presented in Figure 1.

Almost 47 percent is due to the cumulative interest payments on the debt. Close to 24 percent is because of the primary deficits in government budgets over the years. The remainder is attributable to the rise in the rupee value of external debt caused by depreciation of the currency.

The policy implications are very clear, as follows:

(i) Efforts must be made in future to limit the size of primary deficit in the budget, which is total revenues minus total expenditure, excluding debt servicing.

(ii) Debt servicing should be limited by ensuring that interest rates are not too high especially net of the rate of inflation.

(iii) The external balance of payments must be managed in such a way that there is only a modest rate of depreciation annually in the value of the rupee.

The largest absolute annual increase in government debt is likely to be in 2021-22, due both to a big rise in the budget deficit and a large fall in the value of the rupee. As opposed to this, 2016-17, saw the smallest increase because the rupee actually appreciated thereby reducing somewhat the rupee value of external debt.

There is need for people to be told that each person is carrying on his head a burden of almost Rs 200,000 of public debt. This will motivate the citizenry to demand a better quality of financial management by governments in Pakistan.

Copyright Business Recorder, 2022