The State Bank of Pakistan revealed that the central government’s debt escalated by almost one-third over the past year until August, totalling nearly Rs.64 trillion. This 29% rise represents an addition of Rs14.4tr, with the debt being Rs49.57tr at the end of August 2022.
A breakdown of this figure shows that:
- Domestic debt: Increased 23% to Rs39.79tr from Rs32.15tr in August 2022.
- External debt: Surged 39% to Rs24.17tr from Rs17.42tr the previous year.
This growth in domestic debt is alarming as it consumes a significant portion of the nation’s tax revenue. This restricts funds for development and hampers economic growth. A sizable portion of the income is allocated for debt service, undermining economic advancement.
From the start of the fiscal year FY24, the government’s total debt increased by 5.1%. The 29% inflation and 22% interest rates in these two months have exacerbated domestic debt. The Senate was informed that the domestic debt might have risen by over Rs7tr since January of the prior year due to a surge in the State Bank’s policy rate from below 10% to 22%. An official noted that a 1% increase in interest rates typically leads to an additional Rs600bn in debt. The policy rate grew from 9.75% in January 2022 to 22% by June’s end, causing the domestic debt to rise by Rs7.35tr since January 2022 and almost Rs6tr since April 2022.
Regarding external debt, its prominent percentage boost is linked to the rupee’s devaluation against the US dollar, making the debt appear more substantial in rupee terms. The external debt significantly grew in August by Rs1.44tr. On average, the external debt surged by Rs563bn monthly between August 2022 and August 2023. The dollar reached Rs307 in September, impacting external debt figures. However, the rupee is rebounding, appreciating 7.5% from its nadir, which will be evident in September’s data. Currency experts anticipate the rupee’s continuous appreciation for significant debt reduction.
A nation’s capability to handle external debt is related to its foreign exchange reserves. However, the State Bank disclosed a drop in its forex reserves, decreasing $21 million to $7.615bn as of September 28. The total foreign reserves are $13.03bn, including the $5.42bn with commercial banks. For FY24, Pakistan requires around $25bn solely for debt service. Despite the government repaying its debts, significant fund inflow hasn’t occurred since July, when the IMF granted $1.2bn. Saudi Arabia and UAE also contributed, raising the reserves to $8.15bn from $4.46bn in June.
