(Express Tribune) by Shehbaz Rana
ISLAMABAD: The central government’s debt increased at a double-digit pace to Rs32.1 trillion by the end of November, an addition of a whopping Rs5.7 trillion in just one year, as the Pakistan Tehreek-e-Insaf (PTI) government failed to adequately enhance revenues to meet expenditures.
The debt bulletin that the State Bank of Pakistan (SBP) released on Wednesday showed that the central government’s debt stood at Rs32.1 trillion by the end of November 2019. There was an addition of Rs5.7 trillion or 21.5% compared to the November 2018 level of Rs26.5 trillion.
When Imran Khan became the prime minister, the central government’s debt was close to Rs24.5 trillion and under his watch, nearly Rs7.5 trillion has been added excluding liabilities. In February last year, PM Imran vowed to bring the public debt below Rs20 trillion.
The general government debt, including guarantees and IMF borrowing, rose to 88% of gross domestic product (GDP) by the end of the previous fiscal year, according to a new report of the International Monetary Fund (IMF).
The IMF said debt in the previous fiscal year increased as a consequence of fiscal slippages, exchange rate depreciation and government’s decision to increase cash deposits considerably to provide a financing cushion against potentially unfavourable market conditions.
In the current fiscal year too, the IMF has revised upwards its public debt and liabilities’ projection to 84.7% of GDP or Rs37.6 trillion, showed the report.
The central government debt comprises long and short-term domestic debt and external debt.
Out of the Rs5.7-trillion increase in central government’s debt, Rs3.7 trillion or nearly two-thirds was on account of budget deficit financing, said the Ministry of Finance on Wednesday in response to the SBP’s debt report.
The central bank is also under increasing pressure to cut its policy rate, which is currently 5.75% higher than the core inflation of 7.5%. This has significantly increased the cost of debt servicing, which is now projected at Rs3.2 trillion for the current fiscal year or 60% of the Federal Board of Revenue’s (FBR) revised target.
FBR’s revenues are not growing at a pace desired by the IMF. Lately, FBR Chairman Shabbar Zaidi has also come under pressure to show performance. Zaidi has proceeded on a leave of two weeks, apparently on medical grounds.
The Ministry of Finance said about Rs1.034 trillion or 18.2% was added to the public debt till November due to exchange rate depreciation. The exchange rate was Rs140.26 in November 2018, which depreciated to Rs155.25 against a dollar till November last year.
The ministry said the remaining Rs970 billion was added to the public debt because of Pakistan’s decision to build cash buffers before the beginning of the IMF programme.
However, the IMF disapproved of the policy of keeping huge cash buffers and subsequently the government utilised Rs1.4 trillion in November. The total cash buffers were close to Rs2 trillion.
The Ministry of Finance has inordinately delayed the release of a critical report on public debt management risks amid a steep rise in public debt and liabilities, which deprives the public of critical information at a time when the public debt remains at unsustainable levels.
The finance ministry released the last report on debt management risk indicators in June 2018. The next reports are due for the period of December 2018 and June 2019. However, no report has been launched for the past one and a half years.
The SBP report showed that the central government’s total domestic debt increased from Rs17.32 trillion to Rs21.4 trillion in November – a net addition of Rs4.1 trillion or 23.6%.
The report showed that a major increase in the federal government’s debt was on account of long-term debt, which swelled from Rs7.3 trillion to Rs16.6 trillion.
There was an increase of Rs9.3 trillion or 128% in the long-term debt. This was because of the government’s decision to convert its short-term borrowing from the central bank to long-term debt.
The short-term domestic debt dropped from Rs10.1 trillion to Rs4.8 trillion in November last year due to the shift of borrowing to long-term instruments.
The federal government’s debt, acquired through the sale of Market Treasury Bills (MTBs) to commercial banks, increased from Rs3.3 trillion to Rs4.2 trillion – an addition of Rs917 billion or 27.6%.
The external debt of the central government also increased from Rs9.1 trillion to Rs10.7 trillion – an addition of Rs1.6 trillion or 17.4% in one year.