Rs68tr current public debt to go further up by Rs11.8tr in FY23-24: BMP


Anjum Nisar says govt will have to manage budget financing of Rs7.5trn through domestic avenues
The Federation of Pakistan Chambers of Commerce and Industry’s Businessmen Panel (BMP) has stated that the total public debt and liabilities of the country has presently been standing at Rs68 trillion in FY22-23, expressing the fear that it would go up further by Rs11.8 trillion in the current fiscal year.
The BMP chairman and ex-president of FPCCI Mian Anjum Nisar pointed out that the total public debt and liabilities would go up manifold mainly because of the rising fiscal deficit and it is estimated that fiscal deficit would escalate by Rs8.227 trillion for the current fiscal year, equivalent to 7.8 percent of GDP.
Mian Anjum Nisar said that despite hectic efforts of the government to convince the IMF for projecting lower debt servicing, the IMF did not accept the stance of the government and projected the debt servicing on domestic and external loans standing at Rs8.627 trillion for the current fiscal year.
Ironically, the government will have to manage budget financing to the tune of Rs7.5 trillion through domestic avenues and only Rs1 trillion would be made available as budgetary support from foreign avenues. The IMF also assessed that the debt servicing might escalate up to Rs9.621 trillion for the next fiscal year.
The subsidies amount was kept unchanged at Rs1.39 trillion for the current fiscal year although the government had so far released only Rs2.5 billion during the first quarter of the current fiscal year. The defence spending was also kept unchanged at Rs1.8 trillion for the current fiscal year.
On the fiscal side, the IMF and Pakistani sides agreed to slash the development spending at federal and provincial levels. At the federal level, the development spending was reduced from Rs843 billion to Rs782 billion for the current fiscal year.
The government had allocated Rs950 billion for PSDP projects in the current fiscal year. For provincial level development programs, the IMF has projected reduction from Rs1,440 billion to Rs1,325 billion for the current fiscal year.
On the revenues side, the FBR’s target was kept unchanged at Rs9.415 trillion for the current fiscal year. On non-tax revenue side, the IMF and Pakistan agreed to jack up collection on petroleum levy from Rs869 billion to Rs918 billion for the current fiscal year.
He said that the country is in the middle of a deep economic crisis amid steep currency devaluation and interest rates hikes with its major debt sustainability indicators witnessing marked deterioration during the first half of this fiscal year.
Amid the crippling economic crisis, the govt will have to return $77.5 billion as external debt in the next three years, that is by 2026. The report also noted that a major portion of the $77.5 billion is owed to China, and has to be paid in June when a $1 billion Chinese SAFE deposit and a roughly $1.4 billion Chinese commercial loan would mature.
A report showed that Pakistan’s share of external debt in the total public debt rose from 37% in June to 37.2% by December, heightening the currency risks simultaneously with the rupee sinking and foreign countries shying away from extending loans.
This is synchronous with interest rates at historic highs and the currency devaluing by 56 per cent since the incumbent government came into power a year ago, reported The Express Tribune.
Further problematic is the fact that with a population of nearly 230 million may be unable to meet its external debt obligations – which will trigger a sovereign default, the USIP analysis said.
According to the debt bulletin, in dollar terms, Pakistan’s total public debt stood at USD 233 billion by December, including USD 86.6 billion in external public debt.
The country needs to service 28 per cent of its debt in just one year, which is quite a big chunk and will expose the nation to all types of debt-related risks. The floating rate domestic debt is now 22.5 trillion or 68 per cent of domestic debt, which is poisonous due to interest rates at a record 20 per cent.
To overcome these, Pakistan hopes to convince China to refinance and rollover both debts, something the Chinese government and commercial banks have done in the past.
Even though Pakistan evades defaulting in 2023, the year 2024 will be even tougher for the country. This is because the debt servicing will rise to nearly $25 billion.
This includes $15 billion of short-term loans and $7 billion in long-term debt, including a vital $1 billion repayment on a Eurobond in the fourth quarter.
On the other hand, the short-term debt repayments include $4 billion Chinese SAFE deposits, $3 billion Saudi deposits and $2 billion UAE deposits.
All things considered, if Pakistan fails to repay completely, there will be a cascade of disruptive effects. Pakistan’s imports could be disrupted, which could lead to a shortage of some essential goods and commodities.
The finance ministry stated that containing exposure to external debt is important to manage the exchange rate risk. The depreciation of the rupee over the last four years against international currencies has resulted in a higher value of external debt when translated into local currency.