–Pakistan’s external debt reached $110bn by end-March
–Interest servicing consumed 40pc of the revenue collected in 9MFY20
ISLAMABAD: Although the Pakistan Tehreek-e-Insaf (PTI) government has been criticising the previous governments for taking exorbitant amounts of loans, the incumbent government has added at least Rs2.5 trillion to the public debt during the first nine months (July-March) of FY20.
According to the Economic Survey 2019-20 released on Thursday, Pakistan’s total public debt stood at Rs35.207 trillion at end of March 2020, as compared to Rs32.708 trillion at the end of June 2019, registering an increase of Rs2.499 trillion.
The federal government’s borrowing to finance its deficit remained at Rs2.080 trillion during the said period.
As per the survey, the major reasons behind the surge in public debt included depreciation of Pak Rupee against US Dollar, increase in the government’s cash balances and the difference between debt and budgetary receipt of Pakistan Investment Bonds (PIBs) issued during the period under review.
Contrary to last year, most of the net domestic debt during the first nine months of FY20 was raised through medium-to-long-term government securities (PIBs) and National Saving Schemes (NSS). Even within short-term floating debt, the government borrowed mostly via 12-month Treasury Bills (T-bills). Resultantly, the share of 3-months T-bills in the total T-bills portfolio reduced to around 28pc at the end of March 2020, when compared with around 100pc at the end of June 2019.
Meanwhile, on the external front, all the net external debt during the first nine months of FY20 was raised from multilateral and bilateral sources. Accordingly, the share of multilateral and bilateral debt inched up in the external public debt portfolio while the share of debt obtained from commercial sources (loans from foreign commercial banks and Eurobonds) declined marginally.
The Debt-to-GDP ratio was earlier expected to decline by the end of 2019-20 on the back of fiscal consolidation efforts by the government. However, the Covid-19 shock is expected to result in higher than anticipated Debt-to-GDP ratio mainly due to the sharp decline growth and the increase in the budget deficit.
The steep rise in domestic interest rate and depreciation of Pak Rupee along with the already constrained revenue growth had increased the debt-servicing requirements during FY19; interest payments had consumed almost 43pc of total government revenue. However, during the first nine months of FY20, interest expenditures consumed 40pc of the total revenue.
Interest servicing was recorded at Rs1.9 trillion during the first nine months of FY20 against the annual budgeted estimate of Rs2.9 trillion. Domestic interest payments clocked in at Rs1.646 trillion (around 88pc of the total) mainly due to the higher volume of the total public debt portfolio.
Interest expense is expected to remain significantly less than the budgeted amount in 2019-20 owing to re-profiling of short-term debt into long-term debt and a sharp decline in the cost of borrowing in longer tenor.
EXTERNAL DEBT AND LIABILITIES
According to the survey, Pakistan’s External Debt and Liabilities (EDL) reached $110 billion by the end of March 2020, registering an increase of $3.6 billion from last year. The main components of this increase included the external public debt stock, which increased by $3 billion. This was due to a $2.3 billion increase in debt from multilateral and bilateral sources. The stock of commercial loans/Eurobonds registered a decrease of $0.7 billion, whereas non-resident investment in government securities was recorded at $1.4 billion.
Pakistan’s external debt is derived from four key sources, with around 48pc coming from multilateral loans, 32pc from bilateral loans, 7pc from Eurobonds/Sukuk and 14pc from commercial loans. Although borrowing from commercial sources has relatively increased during the last few years, multilateral and bilateral sources still cumulatively constitute 79pc of external public debt portfolio as of end-March 2020. Private sector debt and liabilities increased by $1.7 billion during 9MFY20.
Regarding the inflows and outflows of EDL, the economic survey showed that gross external loan disbursements were recorded $8.017 billion during the period under review, which included disbursements from multilateral sources (including IMF) amounting to $4.839 billion (accounting for 60pc of the total disbursements).
The survey also revealed that the disbursements from IMF were part of the ongoing EFF programme, while inflows from ADB and other International Financial Institutions were largely targeted towards energy, finance and infrastructure development. The disbursements from bilateral sources stood at $1.305 billion. Out of this total, disbursements from Saudi Arabia and China were $720 million and $460 million, respectively.
Commercial loans, which were primarily obtained for balance of payments support, contributed $1,873 million in external public debt disbursements.
In order to counter the negative impacts of the coronavirus outbreak on the economy, Pakistan had secured $1.386 billion under IMF’s Rapid Financing Instrument (RFI) facility. The amount was disbursed in April 2020, while further corona-based external inflows are expected from the World Bank and ADB during the fourth quarter of FY20.
Apart from the received loans, the external public debt repayments were recorded at $5.537 billion during 9MFY20 as compared with $4.138 billion last year. Repayment of Eurobonds and higher repayments to IMF mainly contributed towards this increase in repayments.
