Pakistan’s debt and liabilities soar to Rs77.1 trillion in FY23

KARACHI: Pakistan’s total debt and liabilities rose by 29 percent to Rs77.1 trillion in the fiscal year that ended on June 30, the central bank said on Wednesday, as the government borrowed heavily to finance its spending requirements.

At the end of the last fiscal year, the country’s debt and liabilities, including domestic and foreign, totaled Rs77.104 trillion, up from Rs59.772 trillion the year before.

The State Bank of Pakistan (SBP) data shows that in the fiscal year 2022/2023, the total debt and liabilities as a percentage of GDP increased to 91.1 percent from 89.7 percent in the previous year.

The nation’s debt rose 28.4 percent to Rs72.991 trillion, while the liabilities increased 34.6 percent to Rs4.587 trillion in FY2023.

To finance its expanding budget deficit and to cover the cost of repaying its domestic debt, the last Pakistan Democratic Movement government borrowed heavily from domestic sources, namely commercial banks.

Because the International Monetary Fund loan programme was suspended and there were no inflows of foreign currency through bilateral and multilateral channels, the government was forced to rely significantly on domestic borrowing, which increased its stockpile of debt.

As a result, the country’s domestic debt increased by 25 percent to Rs38.808 trillion in FY2023.

The government borrows funds from commercial lenders, multilateral institutions, the Paris Club, and international financial institutions to meet budget deficits, finance the current account gaps, and build up foreign exchange reserves. However, a steep decline in the value of the local currency caused the amount of foreign debt to rise, reaching Rs32.495 trillion in FY2023 as opposed to Rs24.358 trillion in FY2022. The rupee’s value fell by 41 percent during last fiscal year. It traded at 286 per dollar in FY2023, down from 204 in the previous year.

The total debt and liability servicing rose 76 percent to Rs9.819 trillion in FY2023. The interest payments on debt rose to Rs5.935 trillion from Rs3.331 trillion.

The pressure on domestic funding is increasing as a result of the bigger budget deficit and the absence of significant foreign inflows.

Last month, the International Monetary Fund approved a fresh $3 billion bailout for Pakistan’s struggling economy, which had been dangerously near to defaulting on its debt. The IMF and friendly nations provided the country with $4.2 billion in financial support in July. The country received inflows of $2.0 billion from the Kingdom of Saudi Arabia, $1.2 billion from the IMF, and $1 billion from the United Arab Emirates.

Sana Tawfik, an analyst and economist at Arif Habib Limited, said that it appears that the government’s budgetary borrowings remained high this year. She said that it appears that the country’s projected FX inflows from bilateral and multilateral sources will be the only way to cover its gross external funding needs.

The SBP anticipates that the foreign exchange reserves would rise to $12 billion by the end of this fiscal year, although the reserves could fall if there is significant pressure on the current account, Tawfik said.

Due to anticipated increases in debt servicing expenses amid the high-interest rate environment in the nation, our budget deficit appears to be on an upward trend. Imports have not yet been fully opened, but if they are, tax revenues will increase, she added.

“If there is a shortage in tax receipts and markup costs rise, the deficit will widen and borrowing will rise. In order to address these issues, it is necessary to increase export and remittances in order to boost foreign currency inflows.”

The SBP released data on foreign debt in dollar terms separately, showing that Pakistan’s external debt and liabilities (outstanding) decreased by $6 billion or 4.62 percent to $124.296 billion in FY2023.

Pakistan had to pay $20.811 billion as external debt servicing in FY2022, compared with $15.10 billion in the previous year. The bifurcation shows that Pakistan paid $16.390 billion as principal amount and $4.420 billion as interest. -(thenews.com.pk)