Total Public Debt of Pakistan is the debt owed by the government (including federal and provincial governments) serviced out of consolidated fund and debts owed to the International Monetary Fund. Pakistan’s total debt and liabilities jumped to Rs53.5 trillion.
The increase in public debt alone, which is the direct responsibility of the government, was Rs. 19.5 trillion, as it amplified to Rs44.4 trillion by March 2022. The debt burden increased both in absolute terms and in terms of the size of national economy, underscoring that Pakistan’s economic viability requires serious long-term reforms.
The debt issue has been politicized for the past 10 years and no government brought meaningful reforms to stop the debt accumulation.
The total debt and liabilities of the country increased to Rs53.5 trillion, a surge of Rs23.7 trillion or nearly 80%, when compared with the statistics before PTI came to power. The PTI government formed the Debt Commission to probe the reasons for the surge in public debt from Rs6 trillion in 2008 to Rs24.5 trillion in 2018, suspecting that the debt increased due to alleged corruption by his political opponents.
Inflation measured by the Sensitive Price Index (SPI) increased by 0.82 per cent from the previous week, mainly due to a slight increase in perishable food products, according to the Pakistan Bureau of Statistics (PBS) data released, recently.
A recent 3.68% increase was noted in the SPI, which was the highest since the change of the base year for measuring the SPI. On June 17, the second highest increase in weekly inflation was recorded at 3.38%. The year-on-year increase in the SPI was 38.63%, the highest ever recorded. This is the highest increase recorded on a year-on-year (YoY) basis. The PBS data shows that the prices of 33 essential food items increased during the week under review compared to the previous week.
The rupee made a strong recovery in the interbank market on August 03, rising by Rs9.59 against the dollar — its highest single-day gain ever.
On August 4, the rupee was closed at Rs228.80, up 4.19%, compared to earlier close of Rs238.38. It seems that the lower import bill for July had helped reduce the country’s trade deficit, which in turn had eased the pressure on the rupee.
The rupee’s recovery was due to a sharp drop in import payments after all letters of credit for oil in July were cleared and exporters rushed to close their open positions.
According to Mettis Global, remarkable recovery is “primarily attributed to the improved economic fundamentals as the import bill in July 2022 has been reduced to $4.86 billion, down by 38.31 per cent, compared to $7.88bn in the previous month”.
Accordingly, the trade deficit for July narrowed to $2.64bn compared to a deficit of $4.96 billion in the preceding month, a slump of 46.77 percent.
Another factor of difference of Rs. 10 between the rates in the open market and interbank market due to the smuggling of dollars into Afghanistan has been steady because of tighter security at the border
The inflows, coupled with global and local recession impacting or reducing oil, food and commodity prices, would lead to a much lower import bill, thereby lowering demand for dollar outflows
According to the data released by the Pakistan Bureau of Statistics the import bill dropped by 12.81% to $4.86 billion in July from $5.57 billion over the corresponding month of last year. On a month-on-month basis, the import bill dipped by 38.31%. In June alone, the import bill edged up to $7.74 billion from $6.28 billion over the same month last year, reflecting an increase of 23.26%. The import bill had increased 43.45% to $80.51 billion during fiscal 2021-22, up from $56.12 billion a year ago.
Pakistan’s trade deficit declined by 18.33% to $2.64 billion in July from $3.23 billion over the corresponding month of last year. The month-on-month decline in trade deficit was recorded at 46.76 percent.
In FY22, the trade deficit reached an all-time high of $48.66 billion from $30.96 billion a year ago, indicating an increase of 57pc on the back of higher-than-expected imports.
The current painful situation is a combination of external commodity price shocks, internal political crisis and a perennial fiscal crisis. This near-deadly combination, has made financial markets very nervous. This confluence of events has prevented even good news on the IMF front from calming our financial markets, which had always reacted positively to such agreements previously.
These factors have made our financial markets unable to clearly distinguish between normal and edgy reactions. One may see the markets as overreacting to this complex situation. The conventional doses of economic remedies have become weak in the eyes of the market. High doses of depreciation and inflation have, therefore, emerged to heal the shock and crises-afflicted economy.
In terms of size of the economy, Pakistan’s total debt and liabilities were equal to 76.4% in 2018 that jumped to 80% by March this year despite the rebasing of the economy.
The SBP report showed that the last PTI government added Rs19.5 trillion to the public debt during its three-and-a-half-year stint, which was more than the liabilities accumulated by any government in 75 years. The gross public debt stood at Rs44.4 trillion by the end of March 2022, according to the SBP data.
The lower-than-targeted tax collection, steep currency devaluation of around 50%, higher interest rates, higher expenditures along with losses incurred by state-owned companies and debt mismanagement were the main reasons for the surge in public debt during the PTI’s tenure.
The federal government’s total domestic debt increased to Rs28 trillion, an addition of Rs11.6 trillion (or 71%) in the last three and a half years. Before PTI’s Government took office in 2018, the domestic debt stood at Rs16.4 trillion.
The external debt of the federal government increased at an alarming pace of 91% to nearly Rs15 trillion since July 2018. There was a net increase of Rs7.1 trillion in the external debt, largely due to currency depreciation and building foreign currency reserves through borrowing.
The direct consequence of the mounting debt pile is a huge increase in the cost of debt servicing. The debt servicing, which three and a half years ago was Rs1.5 trillion, is expected to stay above Rs3.2 trillion by the end of current fiscal year
A positive aspect is that has been witnessed lately is a partial correction in the exchange rate a few days earlier, after a uplifting statement by the IMF that Pakistan had taken all the required actions for the release of tranche. The exchange rate woes are interwoven with too many import payments chased by too few exports. The dollar value of petroleum imports rises dramatically with the rise in international oil prices.
According to State Bank data, the FY22 petroleum imports have risen to $18.7 billion from $9.7 billion last year representing a hefty growth of 92.8 percent. This has led our FY22 total import of goods and services to rise to $84.2 billion from $62.7 billion last year, with a growth rate of 34.3 percent. With the FY22 exports of goods and services increasing to $39.4 billion from $31.6 billion, the intense pressure on trade and services account is obvious. The FY22 deficit on trade and the services account has increased to $44.8 billion from $31.2 billion last year, representing a deterioration of $13.6 billion.
One perplexing factor that affected the exchange rate is the extremely high value of petroleum imports in June 2022 — $2.9 billion compared to only $1.4 billion in May. Except for June, per month petroleum imports were valued at only $1.4 billion. It is puzzling that this value is more than twice the values observed in earlier months.
However, this deficit is far larger than the FY21 current account deficit of only $2.8 billion. For many analysts, this is the reason enough for the large depreciation observed so far. In addition, the current account deficit of June was $2.3 billion — 64 percent higher than the May deficit. From this viewpoint, the exchange rate pounding is a rational market outcome. The convergence of various crises together with political uncertainty has caused these market sentiments, which may continue even after the resumption of the IMF program.
The PSEs’ external debt increased 312% to Rs1.34 trillion, suggesting a major impact of the currency devaluation. The domestic debt of the PSEs increased from Rs1.1 trillion to over Rs1.4 trillion, an addition of 35%.
The author, Nazir Ahmed Shaikh, is a freelance columnist. He is an academician by profession and writes articles on diversified topics. Mr. Shaikh could be reached at nazir_shaikh86@hotmail.com.