Total public debt rose by a whopping 18.4 percent by the end of June 2012 compared to the year before with real growth of debt (7.9 percent) greater than the real growth of revenues (3.9 percent), Debt Policy statement 2012-13 revealed. The document notes that public debt stood at 4.9 times of government revenues at the end of the last fiscal year. Ideally, the document added, this ratio should be 3.5 times or lower.
While in earlier years public debt stock accounted for almost the same burden from domestic and external sources, the present government has relied increasingly on domestic debt owing to “non-availability of sufficient external financing.” Thus domestic borrowings inched from 50.5 percent in 2008-09 to 60.3 percent of total public debt at the end of 2011-12.
Pakistan’s fiscal deficit has shown significant variation, the document further noted, from original budgetary targets. Fiscal deficit in 2011-12 recorded 6.6. percent of Gross Domestic Product (GDP) (excluding one-off payment of Rs 391 billion) against 6 percent (excluding one-off payment of Rs 120 billion) in 2010-11. The higher fiscal deficit added to the public debt and preempted a major chunk of revenue to service it in 2011-12, nearly 40 percent of total revenues were thus consumed in debt servicing against a ratio of 38 percent in 2010-11.
The government consolidated Rs 391 or 1.9 percent into public debt in 2011-12 against the outstanding previous year’s subsidies related to the food and energy sectors due to which the public debt to GDP exceeded the threshold (60 percent) and stood at 61.3 percent of GDP.
Public debt servicing consumed nearly 39.9 percent of total revenues in 2011-12 against a ratio of 38 percent last fiscal year. Out of the total, domestic debt servicing stood at Rs 821 billion against the budgeted estimate of Rs 715 billion.
Borrowing from the International Monetary Fund (IMF) accounted for 11.1 percent of Pakistan’s External Debt and Liabilities (EDL). As of June 2012 the EDL was recorded at $65.8 billion and represented a decrease of $0.5 billion in comparison with the previous year due to repayment of IMF loans and appreciation of the US dollar against other major currencies. As a percentage of GDP in dollar terms, EDL stock fell by 300 basis points in 2011-12 compared to the year before.
The report added that during the first quarter of the current year an increase of $726 million in public and publicly guaranteed debt aggregated to $ 47.1 billion. Multilateral and bilateral loans showed a cumulative increase of $703 million during the first three months of 2012-13 and the IMF outstanding dues declined by $ 333 million in the first quarter. External debt servicing as a percentage of foreign exchange earnings stood at 12.7 percent at the end of 2011-12 compared to 11.4 percent the year before. A generally acceptable threshold is EDL: servicing to remain below 20 percent of FEE, the document added. But with hefty payments against IMF expected during the next two years this indicator, the report added, would rise.
The documents further indicated that the soundness of Pakistan’s debt position remains higher than the internationally accepted thresholds. Total public debt levels around 3.5 times and debt servicing below 30 percent of the government revenue are generally believed to be within the bounds of sustainability. The government is making concerted efforts to increase revenues and rationalise current expenditure to reduce the debt burden and improve the debt carrying capacity of the country to finance the growth and development needs, the document concluded.
