Pakistan's public debt soars to Rs36.3 trillion
The Pakistan Tehreek-e-Insaf (PTI) government added Rs11.35 trillion in the public debt during the first two years in power, which was more than the total debt the previous government had taken in its five-year term.
In a briefing to media, the spokesman of the Ministry of Finance said that total public debt as of June 30, 2020, increased to Rs36.3 trillion or 87% of Gross Domestic Production (GDP). "There was an addition of Rs11.35 trillion or 45% in the total public debt in the past two years," said Mohsin Chandna, spokesman of the Ministry of Finance.
When the Pakistan Muslim League-Nawaz (PML-N) government left the power corridors, the total public debt was Rs24.95 trillion or equal to 72.5% of GDP. In just two years, it has surged to 87% of GDP, which is unsustainable and carries huge risks for the economy and the country's foreign policy.
"About 42% of the additional debt in the past two years was due to debt servicing expenses and another 31% because of currency devaluation," said Chandna. Independent experts have criticised the PTI government for keeping the interest rate artificially high at 13.25% and devaluing the currency more than the requirements - the two factors that had now contributed to skyrocketing the public debt.
In February last year, Prime Minister Imran Khan had vowed to bring the public debt down to Rs20 trillion. PM Imran has been very critical of the economic policies followed by the previous PPP and PML-N governments and has set up the Debt Inquiry Commission to investigate reasons behind the addition of Rs18 trillion to the debt stock in 10 years.
But the spokesman said that the public debt management indicators have significantly improved in the past one year due to better management that reduced the refinancing risks and ended the exploitation of the banks that were making "easy money in the past". The liabilities that the PTI government added in the past two years were not part of the central government's total debt of Rs36.3 trillion.
Reason for increase in debt
Out of the Rs11.3 trillion additional public debt in two years, Rs2.5 trillion or 22% has been added due to expenditures, other than debt servicing, said Chandna. He said that during the five years of the PML-N government (20142018), the contribution of expenditures, excluding debt servicing, was Rs2.2 trillion or 21% of the additional Rs10.7 trillion that had been added during that period.
From July 2018 to June 2020, the interest expenses consumed Rs4.7 trillion and became a reason for 42% addition in the public debt, said Chandna. During the 2014-18 period, the share of interest expenses in total additional public debt was 62%, he added.
To a question, whether the central bank should be blamed for a massive surge in interest expenses, the spokesman refused to reply. But he said that the federal government borrowed at rates, which were lower than the policy rate that was an indication that the interest rates were higher than market expectations.
Chandna also did not answer the question as to why the SBP kept real interest rates positive by 4.5% throughout the year, which was far higher than the globally accepted standards of around 2%. The spokesman said that in the past two years, Rs3.5 trillion was added to the public debt due to exchange rate depreciation, which was equal to 31% of the additional debt.
During the 2014-18 period, the exchange rate depreciation contributed only Rs1.6 trillion or 15% of the additional public debt.
The value of the dollar should not have been artificially stopped at Rs105, which carried serious implications for the economy, said the spokesman. Within two years of the PTI rule, the rupee-dollar parity traded at Rs169 to a dollar. In June 2018, the value of the dollar was equal to Rs121.54.
About Rs600 billion or 5% of the additional public debt in the past two years was added because of other reasons, said the spokesman.
The accumulation of debt is a direct result of the gap between expenditures and revenues, which is widening due to the inelasticity of debt servicing and defence needs and the Federal Board of Revenue's (FBR) failure to enhance revenue collection. Steep currency depreciation also contributed to the central government's debt.