The federal government’s total debt soared by 11.5% in one year. The external debt increased by 8% within the first two months of the current fiscal year FY22. The debt amounted to Rs35.660tr in August 2020 but increased by Rs4.111tr reaching Rs39.771tr in August of this year.
As per the report issued by the State Bank of Pakistan (SBP) the government’s external debts rose significantly by Rs1.3 trillion during the last year primarily on account of the depreciation of the rupee against the US dollar.
However, the domestic debt increased by Rs70 billion within two months rising from Rs26.265tr in June to Rs26.335tr in August this year.
The increasing debt results in increasing debt servicing which in turn takes up a huge chunk from the tax revenue while reducing funds available for development purposes. Every year the government ends up borrowing more in order to repay old debts to meet the fiscal gap that is the difference between revenues and expenses.
The central bank’s report shows that the total debts have gone down by 0.2% for the first time in the last 10 months. It dropped by Rs99bn taking the figure from Rs39.771 trillion in August Rs39.870tr in July.
The external debts have been on a rise owing mostly to aggressive borrowings by the central government, but the local currency’s steep depreciation against the greenback has also majorly contributed to the increase in debt. The rupee lost more than 11.5% since May 7 against the US dollar.
The central bank’s report shows the external debt soaring in July-August from standing at Rs12.432tr in June to Rs13.436tr in August due to an increase of Rs1.004tr.
The increase of over Rs1tr within a few months is reflective of the impact of rupee depreciation.
The external debt was standing at Rs12.123tr in August of last year and increased by 10.8% to Rs13.436tr in August this year.
The largest amount borrowed by the government was through Pakistan Investment Bonds (PIBs).
However, it saw a decrease of Rs464bn during the last two months. The PIBs amounted to Rs14.126tr in August compared to Rs14.590tr in June. The PIBs saw an increase of Rs735bn from Rs13.391tr in Aug 2020 to Rs14.126tr in August 2021.
