It is a matter of great concern that Pakistan's Total Debt and Liabilities (TDL) continue to increase consistently and at a very rapid pace. In a debt policy statement laid before the parliament, the ministry of finance has acknowledged that debt and liabilities of the country that stood at Rs 29.879 trillion at the end of fiscal year 2018 had crossed Rs 41.489 trillion by the end of September, 2019, showing a massive increase of 39 percent. These liabilities which were 86.3 percent of GDP in fiscal year 2018 had risen to 94 percent of GDP by end June, 2019. Total public debt increased by Rs 7,755 billion during 2018-19, out of which Rs 3,635 billion was borrowed for meeting the federal budget deficit, Rs 3,061 billion was due to currency depreciation, Rs 927 billion was offset by higher cash balances necessary for effective cash management as the government is committed to zero borrowing from SBP and Rs 132 billion was the difference between the face value and the realised value of PIBs. It may be stated that the impact of exchange rate was favourable during the first quarter of the ongoing year which decreased the rupee value of external public debt stock at end-September, 2019. Total debt of the government decreased by Rs 221 billion during the first quarter of FY20 which indicates that exchange rate gains on account of rupee appreciation against the US dollar were more than offset by the increase caused by financing of fiscal deficit. While private sector loans recorded an increase of dollar 1.2 billion, PSEs' external debt rose by dollar 1.3 billion driven mainly by development loans borrowed by them.

It needs to be noted that there have been some special developments with regard to the TDL during the recent past. One of the major reasons for the sharp increase of the TDL was a massive devaluation of the Pak rupee which contributed to a rise of over 3 trillion rupees although the level of debt denominated in dollar terms had not increased in the same proportion. Another important development was the re-profiling of domestic debt where the government re-profiled the existing stock of SBP borrowings from short-term to medium-term to long-term. Re-profiling took place mainly in the month of June, 2019 which increased the share of long-term debt (permanent and unfunded) in total domestic debt from 46 percent at the end of June, 2018 to 73 percent at the close of June, 2019. This structural shift has reduced the financing risk for the government as average time of maturity of the domestic debt portfolio has increased from 1.6 years at the end of June, 2018 to 4.2 years in June, 2019 which is very close to the long-term target set by the government. The higher domestic debt was mainly caused by a very high fiscal deficit of 9.4 percent of GDP during 2018-19 and most of the reasons behind this challenge were due to delay in reviewing telecom licences and sale of envisaged state assets besides weaker than anticipated tax amnesty proceeds which contributed only around one percent of GDP. Profits of SBP also witnessed a steep decline during 2018-19 as the central bank incurred heavy exchange losses on its external liabilities. Other factors contributing to the sharp rise in domestic debt included a sharp rise in domestic interest rates, exchange rate depreciation, some legal constraints on the revenue side and an overall slowdown in the economy that resulted in lower than budgeted revenue collection.

Whatever the factors behind the steep increase in TDL, the present government should make every effort to curtail the budget and external sector deficits to the minimum to contain the TDL within reasonable limits. While the current account (C/A) deficit has declined to a pretty sustainable limit and will no more be a major cause of increase in external sector debt and liabilities, the government has failed to make much headway on the fiscal side. In our view, it is time for the government to come up with concrete plans to reduce and ultimately eliminate the present high level of fiscal deficit so that the level of domestic debt could be contained at a reasonable level. It may be mentioned here that debt servicing is already consuming almost half of the tax receipts mobilised by the FBR and if this trend is not arrested, the country would have very limited options to spend on other necessities in future. The Parliament had very wisely promulgated the Fiscal Responsibility and Debt Limitation (FRDL) Bill in March, 2005 aimed at eliminating revenue deficit and reducing public debt to prudent levels. The Bill, which transformed into a law after its passage by the Assembly was clearly aimed at bringing down the revenue deficit to zero by 30th June, 2008 and maintain a revenue surplus thereafter to reduce total public debt to 60 percent of GDP by June, 2013 and maintain it at this level in the subsequent years. The FRDL law was, however, violated with impunity by various governments. It is time for the present government to do its duty by bringing the fiscal deficit down to the desired level. Unfortunately, however, Prime Minister's statements that relief will be provided to all sections of population in 2020 and other announcements of various schemes do not augur well for the requirements of the FRDL law and TDL reduction prospects.