Pakistan’s total debt and liabilities have skyrocketed by an alarming 26%, reaching a staggering Rs78 trillion in the past year alone, a trajectory deemed unsustainable without potential debt restructuring. The State Bank of Pakistan’s report unveils a concerning increase of Rs16 trillion by September, averaging a daunting Rs44 billion per day since the previous year.
Despite successive governments introducing austerity measures, meaningful reforms to curb this accumulating debt remain elusive. The absence of substantial benefits from theoretical exercises calls into question the commitment of mainstream political parties to embark on the challenging path of debt restructuring.
The finance ministry’s initial budget allocation of Rs7.3 trillion for interest payments in the current fiscal year faced a startling deviation. With no accountability for the flawed budgeting, the government informed the International Monetary Fund (IMF) that interest payments could surge to a staggering Rs8.5 trillion.
The cost of servicing the debt hinges on the central bank reducing the key policy rate and negotiations with commercial banks for a reduction. The gross public debt, under the finance ministry’s direct responsibility, reached Rs64.5 trillion by September, according to the SBP.
Political Fiscal Policies and Accumulated Debt
The previous fiscal year witnessed a record federal budget deficit of Rs6.7 trillion, attributed to expansionary fiscal policies. The surge in public debt surpassed the budget deficit, underscoring the impact of currency devaluation.
Over their respective five-year terms, political parties significantly contributed to public debt accumulation: PML-N added approximately Rs10 trillion, PPP Rs8 trillion, and PTI alone amassed over Rs19 trillion. The surge in public debt during the PTI’s tenure is rooted in lower-than-targeted tax collection, steep currency devaluation, higher interest rates, increased expenditures, losses by state-owned companies, and mismanagement of debt.
Public Sector Enterprises’ debt and liabilities reached Rs2.33 trillion by September, reflecting uncontrolled losses with no government undertaking necessary steps to reform these enterprises. Key positions within state-owned enterprises are often occupied by political appointees, exacerbating the challenges.
The average exchange rate depreciated by 26.3%, impacting the government’s external debt significantly. External debt expanded by 26% to reach Rs33.4 trillion within a year, primarily due to currency depreciation and foreign currency reserve building through borrowing. Pakistan’s external debt and liabilities reached $128 billion by September.
Servicing the Debt – A Growing Burden
The federal government’s total domestic debt surged to Rs39.7 trillion, marking a Rs8.2 trillion increase (26%) in the past year. In the July-September quarter alone, the country spent a staggering Rs2.2 trillion solely on servicing the total debt and liabilities, reflecting a 41.5% increase from the previous year.
Interest payments alone amounted to Rs1.56 trillion in three months, indicating a 58% surge compared to the same period of the preceding year. The Debt Management Office operates under capacity, with the Ministry of Finance showing reluctance to reinforce it, despite commitments to the IMF and the World Bank. As Pakistan grapples with this burgeoning debt crisis, the need for comprehensive reforms and decisive actions becomes ever more urgent.