KARACHI: Pakistan’s public debt marginally increased 1.43 percent to Rs32.240 trillion in the first two months of the current fiscal year, the central bank’s data showed on Monday. But, low tax-to-GDP ratio is still posing a roadblock to fiscal discipline.
Total public debt stood at Rs31.786 trillion at the end of June 2019, the State Bank of Pakistan’s (SBP) data showed.
Of total public debt, the stock of domestic debt increased 3.68 percent to Rs21.495 trillion till the end of August. Foreign debt, however, fell 2.80 percent to Rs10.745 trillion in the period under review.
Analysts said the government is trying to speed up progress on fiscal consolidation. “But, the country’s fiscal position or the public finances won’t improve unless the government increases the revenue-to-GDP ratio,” an analyst said.
The tax collection in the first quarter of the current fiscal year stood at Rs960 billion, falling short of the government’s target of Rs1 trillion for July-September. Public debt is building up due to increased financing needs of the government to reduce the budget deficit following a shortfall in revenue collection, rise in the government’s spending and high interest payments on domestic debt.
A major portion of the budget deficit financing has now been shifted to commercial banks in the wake of the government’s zero-borrowing from banks for budgetary support — one of the important performance criteria under the International Monetary Fund’s (IMF) $6 billion loan program.
External debt of the central government went down on the back of the appreciation of rupee value against the US dollar and the decline in the current account deficit. The current account deficit narrowed 55 percent to $1.292 billion in July-August FY2020. The rupee traded at 156 against the dollar till August-end compared with 163 by the end of the last fiscal year.
SBP Governor Reza Baqir said two institutional reforms in the current IMF program: the change to a market-based exchange rate system and zero borrowing of government from the State Bank would help engender fiscal discipline.
The government projected public debt to increase 47 percent to Rs45.57 trillion in five years. The domestic debt is set to increase 30 percent to Rs26.8 trillion, while external debt is expected to surge 80 percent to Rs18.77 trillion. Debt-to-GDP ratio is estimated to fall to 66.5 percent in FY24 from 80.4 percent at the end of FY2019, the public debt management plan for FY20-24 showed.
(This news/article originally appeared in The News on October 8th, 2019)