ISLAMABAD: The federal government borrowed an unprecedented Rs2.1 trillion in the last fiscal year that comes to about Rs5.7 billion per day on average. This is the highest-ever amount added into the debt pile of the country in a single year by any government.
The federation’s debt increased from Rs16.96 trillion to Rs19.1 trillion by the end of the 2015-16 fiscal year, the State Bank of Pakistan has reported.
There was a net addition of Rs2.1 trillion in the central government debt, showing a growth of 12.2%. The amount is exclusive of liabilities and debts obtained by public-sector enterprises on their books.
There is no precedent in Pakistan’s history of such massive borrowing, which comes despite the fact the finance ministry has tinkered with the definition of debt.
Through the Finance Act of 2016, the government brought sweeping changes in the Fiscal Responsibility and Debt Limitation (FRDL) Act of 2005. The government amended all sections of the law that could have captured the exact quantum of the public debt.
Since coming into power, the PML-N government has faced severe criticism for contracting expensive foreign debts and increasing the overall debt pile.
In the 2011-12 fiscal, the Pakistan Peoples Party government had added Rs2 trillion in the central government’s debt. For that year, the budget deficit – the gap between income and expenditure – was reported at 8.8% of Gross Domestic Product (GDP) that was cited as a reason for accumulating Rs2 trillion debts.
Meanwhile, the finance ministry claims to have brought the budget deficit down to 4.5% of GDP in the previous fiscal year – that comes to over Rs1.35 trillion.
There was also a mismatch between the amount used in budget financing and the actual increase in the federal government debt, partly because of over Rs200 billion that Pakistan borrowed from the IMF.
The IMF debt can only be used for balance of payments, but it is booked as the central government debt.
The government primarily borrows to meet the gap between its expenditures and revenues. The growing debt has also significantly increased the debt servicing cost – the single largest charge on the budget.
In the last fiscal year, there was a net addition of Rs642.4 billion in the external debt that had grown to Rs5.4 trillion by June 30. The external debt grew at a pace of 13.5%. The trend was contrary to fiscal year 2014-15 outcomes when the external debt actually contracted by Rs101.8 billion.
In the last fiscal year, the rupee also shed its value against the greenback, as the average rupee-dollar parity stood at Rs104.76 to a dollar. In terms of percentage, the value of rupee depreciated by 2.92% in last fiscal year against the US dollar.
However, the exact impact of rupee depreciation on increase in external debt cannot be worked out at this stage due to lack of information about the currency valuations of other major currencies that are part of the country’s debt basket.
The domestic debt grew at a pace of 11.8% to Rs13.62 trillion as of June this year – a net addition of Rs1.43 trillion. Within the domestic debt, the long-term debt grew to Rs8.6 trillion – an addition of Rs1.03 trillion.
The short-term domestic debt also increased to Rs5.1 trillion with an addition of Rs392.3 billion.