In the last fiscal year, Pakistan’s public debt, including both domestic and foreign debts, rose to Rs67,525 billion, marking an increase of Rs4,644 billion compared to the previous fiscal year. This surge was primarily attributed to the federal primary deficit and interest payments on the debt, as stated in the Pakistan Economic Survey report presented by Finance Minister Muhammad Aurangzeb in Islamabad on Tuesday.
As of the end of March, Pakistan’s public debt had reached Rs67.5 trillion compared to the previous year, reflecting the country’s efforts to support its economy amidst challenges. The Finance Minister expressed confidence in managing repayment for the upcoming fiscal year, mentioning potential borrowing from commercial banks as a means to address the issue.
A graph in the report revealed that the total percentage of public debt to GDP was at 75%. The International Monetary Fund (IMF) emphasized the importance of debt sustainability, which relies on factors such as primary balances, real growth, real interest rates, and debt levels. The IMF noted that increasing interest rates and debt levels pose challenges to governments, while higher primary balances and growth contribute to achieving debt sustainability.
According to the State Bank of Pakistan and Debt Management Office, public debt as a fraction of GDP has risen significantly in recent decades, with projections indicating further increases by 2028.
Concerns have been raised by experts regarding the allocation of a significant portion of Pakistan’s budget towards debt servicing, which limits funding for crucial sectors like education and health. The report mentioned that interest expense during the first nine months of the current fiscal year amounted to Rs5,517 billion, lower than the annual budgeted estimate of Rs7,302 billion.
Interest expense on domestic debt reached Rs4,807 billion, reflecting a 55% increase compared to the same period in the preceding year. The rise was attributed to the high cost of borrowing for new domestic debt and the resetting of existing floating-rate debt at higher rates, with approximately 74% of domestic debt being floating rate.
