LAHORE: The Punjab government’s total debt, local and external, has witnessed a jump of Rs 55.3 billion in the last quarter of the previous fiscal year (2022-23), which was an increase of 3.34 percent in three months due to the depreciation of the rupee and new loans.
As per a report released by the Punjab Finance Ministry for the period between March 31 and June 30 on Friday, Punjab dues have jumped to Rs 1707.5 billion from Rs 1,652.2 billion (reported in March 2023). This increase was attributable to a foreign exchange loss of Rs 26.1 billion and a net increase in debt amounting to Rs 29.2 billion during the last quarter of FY 2022-23 (April-June).
The domestic loans showed a decline from Rs 2.7 billion to Rs 2.6 billion whereas external loans swelled from Rs 1,649.5 billion to Rs 1,704.9 billion. These loans collectively were 3.72 percent of Punjab’s GSDP (Gross State Domestic Product).
Punjab govt’s debt stock jumps to Rs1,652.2bn by end of March
It noted that the outstanding dues in June 2023 were exclusive of provincial guarantees (awarded to various Punjab government entities) and commodity debt. The outstanding commodity debt stood at Rs 680 billion at the end of June 2023, which was secured by wheat stock procured by the government for commodity operation along with a guarantee in the form of a Cash Credit Limit (CCL) by the federal government.
The debt portfolio predominantly comprises borrowing from external sources with 99.8 percent coming from multilateral agencies and bilateral loans contracted on concessional terms (low cost and longer tenor), procured mainly for infrastructure development and reform support, whereas only 0.2 percent of the debt portfolio is domestically borrowed from the federal government, the report stated.
The report highlighted that the government’s external debt is derived mainly from three key sources, with around 52 percent coming from World Bank (the International Development Association and International Bank for Reconstruction and Development), 22 percent from China and Asian Development Bank and 4 percent from other sources.
As per the report, the agriculture and livestock sector remained the major recipient of government borrowing, as its share constitutes 25 percent of the total outstanding followed by transport and communication 23 percent, education 21 percent, urban and community development 13 percent, governance 9 percent, health 5 percent and others 4 percent.
Moreover, it pointed out that the government’s debt portfolio is dominated by foreign currency borrowings, with total exposure residing at 99.8 percent of outstanding debt. Currency-wise exposure is denominated in American dollar (72 percent) followed by Special Drawing Rights (20 percent), Japanese Yen (4.7 percent), Chinese Yuan (2.7 percent) and other currencies 0.6 percent.
Hence, it noted, the government’s debt by virtue of its composition remains exposed to Foreign Exchange (FX) risk; owing to this, any change in parity of the dollar and other foreign currencies with the rupee has a pronounced impact on the valuation of Punjab’s debt portfolio when translated into rupee terms.
Copyright Business Recorder, 2023