NationalVolume 14 Issue # 19

Unsustainable public debt

Pakistan’s debt burden continues to grow rapidly. According to the latest SBP figures, the government has added Rs3.6 trillion to public debt by the end of March, taking the total stock to Rs27.8 trillion.

The central government’s debt grew at a pace of 14.8% from July through March of this fiscal year. From July through March 2018-19, the government on an average added Rs13.2 billion a day to its debt. The accumulation of debt is the direct result of the gap between expenditures and revenues, which is widening due to the inelasticity in debt servicing and necessary needs and the Federal Board of Revenue’s failure to enhance revenue collection. In the first nine months of the current fiscal year, the FBR suffered a shortfall of Rs300 billion in revenue collection, which further widened to Rs345 billion at the end of April. The FBR’s tax collection grew at a pace of slightly over 2%.


Due to high levels of debt, the previous government was unable to attract non-debt creating inflows and enhance tax revenues. The PTI government is also trying to enhance exports despite around 35% depreciation of rupee since December 2017. A serious challenge is the continued growth in the short-term domestic debt, which exposes the government to refinancing and interest rate risks. The federal government’s total domestic debt increased to Rs18.24 trillion, an addition of Rs1.8 trillion or 10.7% in nine months of the current fiscal year. The share of short-term public debt slightly decreased to 56.2% or Rs10.27 trillion by the end of March. In June last year, the short-term domestic debt stood at 54.1% or Rs8.9 trillion. The short-term debt grew Rs1.4 trillion or 5.5% in nine months.

The double-digit growth in the debt stock does not augur well for the government. The increase in debt is not in line with Prime Minister Imran Khan’s promise to reduce the debt pile by one-third at the end of his term. The rising pile of debt should be a matter of serious concern for PM Imran, who during an interaction with media persons over a month ago, had said that he planned to bring down the debt stock to Rs20 trillion from what he claimed Rs30 trillion at the end of June 2018. The premier again blamed the governments of the Pakistan Peoples Party and the Pakistan Muslim League-N for increasing public debt to Rs30 trillion. However, some experts contest PM Imran’s claim that the PML-N left the public debt at the level of Rs30 trillion because the SBP record showed that gross public debt by June 2018 was Rs24.2 trillion.

The figures the PTI government shared with the International Monetary Fund (IMF) showed that gross public debt would jump by another Rs11 trillion to Rs36 trillion within three years. It is relevant to note here that international financial institutions and the Ministry of Finance do not see a sharp reduction in the debt level that even as percentage of Gross Domestic Product would remain above 70% of GDP by 2023. The external debt of the central government increased 23.5% to Rs9.63 trillion in the first nine months of the current fiscal year. There was a net increase of Rs1.83 trillion in external debt, largely due to currency depreciation and fresh external borrowings. In June 2018, the value of a dollar was equal to Rs121.54, which reached Rs140.7 to a dollar by the end of March. The worsening debt situation must be controlled through a well-devised policy package, otherwise it will add to the economic woes of the common man.

The government needs to come up with concrete plans to reduce and ultimately eliminate the present level of revenue deficit, so that external and domestic debt is contained to a reasonable level. So far as the external sector is concerned, the government has made the right moves to narrow the trade deficit by substantially depreciating the Pak rupee and imposing duties on various items of imports. Though the steps are in the right direction, yet they have so far not made the expected impact on the current account balance, forcing the government to borrow extensively from friendly countries in order to arrest the dwindling trend in foreign exchange reserves.

The Fiscal Responsibility and Debt Limitation (FRDL) Bill aimed at eliminating revenue deficit and reducing public debt to a prudent level was passed by the National Assembly on March 3, 2005. The Bill, as passed, was meant to bring down the revenue deficit to zero by June 30, 2008, and maintain a revenue surplus thereafter to reduce total public debt to 60 percent of GDP by June, 2013 and maintain it below this level in the subsequent years. The government of the day was bound to keep the National Assembly informed about any deviations from the set course which were only to be allowed in exceptional circumstances. But the Bill, which could act as a guarantee for sound fiscal management, was violated by successive governments with impunity.

The PTI government must act with more responsibility and try to boost revenue and narrow the gap between imports and exports which are the basic reasons behind the rising debt burden. To this end we need to build our industrial sinews and exploit our agrarian potential to the fullest which is the only route to sustainable growth.