Analysis of Economic Survey FY2019 of Pakistan recorded that the main purpose of public debt management is to make sure that the government’s financing needs are met at the lowest possible cost over the medium to long term, consistent with a prudent degree of risk. As a catalyst the debt may well act in the course of growth of an economy as long as the economic returns are higher than the cost of borrowed funds. Therefore, borrowed funds are bound to be correctly used and should conform to the country’s debt repayment capacity.
Historically, the government officials also added that the high debt economies have efficiently responded with an extensive variety of policy approaches. A brief analysis suggests three primary lessons; First, a growth supporting policy mix is inevitable for debt reduction and fiscal consolidation. Second, fiscal consolidation must emphasize persistent structural reforms to public finances over temporary or short-lived fiscal measures. Third, reducing public debt is bound to be time taking, particularly in the context of a weak external environment.
It is also recorded that the government inherited extremely challenging macroeconomic condition marked by high fiscal deficits and debt levels. The condition was turned worse because of shortfall in foreign exchange reserves which contributed to a sharp devaluation of Pakistani Rupee and increasing inflationary pressures which led to a tight monetary policy stance and an important rise in domestic debt servicing cost. Analysis of Survey also showed that over the medium term, the present government of Pakistan’s objective is to bring and maintain its Public Debt-to-GDP and Debt Service-to-Revenue ratios to sustainable levels by a combination of greater revenue mobilization, rationalization of current expenditure and efficient/productive utilization of debt.
The Government of Pakistan is committed to bring down Public Debt to GDP to 50 percent in fifteen years (2032/33) in accordance with the provision of Fiscal Responsibility and Debt Limitation Act.
According to a latest report of the State Bank of Pakistan (SBP), Prime Minister Imran Khan expressed a year ago to reduce public debt by half will remain unfulfilled as Government of Pakistan has added another approximately Rs6 trillion to the debt burden in just 1-year. The Central government’s debt grew 21.3 percent to Rs33.4 trillion by the end of February as against to the same month of previous year. In February previous year, it is hoped that the government would bring public debt down to Rs20 trillion in upcoming years. But policy directions of the past one year indicate that by the time the debt level will approximately double till 2023. Statistics showed that successive governments had added Rs24.2 trillion to the public debt in 71 years, which the Ministry of Finance’s projections show may jump to at least Rs47 trillion within 5-year of the present government.
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SBP registered that the central government’s debt was close to Rs24.2 trillion and about Rs9.2 trillion has been added so far, excluding liabilities. The Central government debt, which was Rs27.5 trillion in February previous year, jumped to Rs33.4 trillion as of February in 2020. In absolute terms, there was a rise of Rs5.9 trillion or 21.3 percent in the central government debt as of the end of February.
The condition is expected to worsen because of the government’s growing liabilities in the aftermath of Covid-19 and a predicted steep reduction in both tax and non-tax revenues. The present government brought four chairpersons of the Federal Board of Revenue (FBR) in the past 20 months but the revenue shortfall has widened.
Sources recorded that presently the government struck yet another political compromise and permitted wealthy builders and developers to spend their black money in the realty sector instead of taking them to task. Earlier, government struck a compromise with traders that contributed to further erosion of the tax base. The government also lacked the political will to enforce the situation of declaring CNIC number on purchase of goods worth Rs50,000.
Statistics also recorded that Pakistani rupee has again started shedding its value against the US dollar and ended at Rs161, which will have implications for the debt level for months of 2020. The central government’s debt grew 5.2 percent to Rs33.4 trillion in 8-month to the end of February in the current fiscal year, an addition of Rs1.64 trillion.The general government debt, counting guarantees and borrowing from IMF, grew to 88 percent of GDP by the end of previous fiscal year. In the current fiscal year too, the IMF has revised upwards its projection for public debt and liabilities to 84.7 percent of GDP or Rs37.6 trillion.But these projections it is said, are probable to be revised further because of implications of the coronavirus for the economy and government’s revenues.
According to the State Bank, the central government’s total domestic debt grew from Rs20.7 trillion in June last year to Rs22.7 trillion in February, a net addition of Rs1.4 trillion or 6.5 percent. A chief rise in the federal government’s debt was on account of long-term debt, which swelled from Rs15.2 trillion to Rs16.9 trillion. There was a rise of Rs1.7 trillion or 10.8percent in the long-term debt.This was due to the government’s plan to convert its short-term borrowing from the central bank to long-term debt. Sources recorded that the short-term domestic debt dropped from Rs5.5 trillion in June 2019 to Rs5.3 trillion in February in 2020. There was a reduction of Rs200 billion in the short-term debt.The MTBs-based debt grew from Rs4.9 trillion to slightly over Rs5 trillion. The external debt of the central government grew from Rs11 trillion in June to Rs11.23 trillion in February. Moreover, the hot foreign money has also started slowly flowing out as foreign investors have so far pulled out $2.2 billion, primarily the UK investors, out of total inflows of $3.4 billion.