Public debt climbs to over 50 trillion rupees in July

KARACHI: Government debt swelled by 27% year-on-year to reach 50.5 trillion rupees in July for the financial year 2023, the latest data released on Tuesday, mainly due to the government’s continued borrowing spree for fill the fiscal hole due to lack of foreign aid and rout of the rupee.

Debt stood at 39.87 trillion rupees as of July 31, 2021. It increased by 6% month-on-month. The debt was 47.78 trillion rupees as of June 30, 2022.

The increased need for government financing to finance the budget deficit and the lack of external aid have led to an increase in public debt. The depreciation of the local currency against the dollar also pushed central government debt up.

Much of the debt stems from domestic debt, which stood at 31.13 trillion rupees in July from 26.82 trillion rupees a year ago. The government has continued to borrow from commercial banks through treasury bills and bonds to meet its financing needs as it does not borrow from the central bank due to the IMF (International Monetary Fund) program.

Foreign currency dry inflows caused by the stalled IMF bailout also increased due to domestic market browning.

Data from the SBP showed that long-term debt rose by 25% to 23.77 trillion rupees in July. Short-term debt was 7.30 trillion rupees, down from 7.74 trillion rupees at the end of July.

Permanent debt increased by 25% to 20.5 trillion rupees in July 2022 from 15.4 trillion rupees in July 2021.

The central government’s external debt stood at 19.37 trillion rupees in July, up 49% from a year earlier.

Government debt is expected to rise further in the coming months due to the economic fallout from the devastating floods in the country. This calamity will force the government to spend more on rehabilitation and infrastructure, thus increasing the budget deficit.

The IMF, which disbursed $1.16 billion for Pakistan last week, forecasts the budget deficit to reach 4.7% of gross domestic product in fiscal 2023. Flood damage could set back question the IMF projections.

Political tensions have led to major fiscal slippages, according to the IMF’s report on Pakistan released last week.

The former government granted a 4-month “relief package” at the end of February 2022 in violation of its budgetary discipline commitments made earlier in the year. The largely untargeted package reduced the prices of petrol and diesel (thanks to a generous general subsidy and the setting of fuel taxes at zero taxation); reduced electricity rates for nearly all household and commercial consumers; and granted tax exemptions and a tax amnesty, the IMF said.

“These measures have been accompanied by the postponement of regular increases in electricity tariffs, as well as increases in the minimum wage and public wages and pensions, and additional food subsidies. The continuation of these measures, along with additional slippages in the third and fourth quarters, widened the FY22 budget deficit by more than 1½% of GDP, far missing the end-June fiscal target,” he said. -he declares.

“The authorities’ plan to achieve a small primary surplus in fiscal year 2023 is a welcome step to reduce fiscal and external pressures and boost confidence. Containing current spending and mobilizing tax revenues are essential to create space for much-needed social protection and strengthen public debt sustainability,” he added.

The IMF expects public debt to decline by almost 7 percentage points of GDP to 72.1% of GDP by the end of FY23, amid fiscal tightening and as inflation erodes the value of the debt in local currency. This follows an increase in the debt-to-GDP ratio from 77.9% at the end of FY21 to 78.9% at the end of FY22 due to the large budget deficit and the exchange rate depreciation despite low real effective interest rates. Supported by the planned fiscal adjustment and robust growth, public debt is expected to follow a downward trajectory towards 60% of GDP by FY27, with external debt declining towards 25% of GDP, according to the IMF.

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