Data released by the central bank on Wednesday, Pakistan’s total debt and liabilities peaked at Rs62.5 trillion at the end of September 2022, an unsustainable 24% increase, pushing the country into uncharted territory.
According to the State Bank of Pakistan (SBP), the country’s total liabilities, primarily government debt, increased by Rs12 trillion, or 23.7%, from the previous year.
According to the figures in the central bank’s latest debt bulletin, neither the Pakistan Tehreek-e-Insaaf (PTI) nor the Pakistan Muslim League-N (PML-N) have a solution to our growing debt problems. With an increasing number of loans and insufficient resources to repay them, the country’s fate has been placed in the hands of international financial institutions and global powers.
The world powers are now realizing that Pakistan cannot seem to survive without continued financial support, which is causing problems in the political and security spheres.
The central bank did not provide a percentage of Pakistan’s total debt and liabilities in terms of economy size. In the last year, the government alone was responsible for an increase in public debt of Rs9.7 trillion. According to the SBP, gross public debt will reach Rs51.1 trillion by the end of September 2022.
None of the three major political parties have been able to implement meaningful debt-reduction reforms. Instead, during its 43-month reign, the PTI added the most debt to the country’s history.
While blaming his predecessors for burying the country in debt, former Prime Minister Imran Khan promised to prioritise debt reduction. However, when he left office in April 2022, his administration had added Rs19.5 trillion to the federal government’s total debt stock.
Pakistan’s Finance Minister, Ishaq Dar, pleaded for additional loans during his visits to China, Saudi Arabia, and the United Arab Emirates in order to meet this year’s gross financing requirements. To secure loans, the government is also in talks with foreign commercial banks, the World Bank, and the International Monetary Fund (IMF).
The increase in public debt and the budget deficit were clearly out of sync, demonstrating the negative impact of currency depreciation on the external debt stock.
Due to the growing ties between Pakistan, the international financial institutions (IFI), and Washington, Pakistan’s total external debt and liabilities have remained nearly unchanged at $127 billion in the last year. However, due to the rupee’s depreciation, there was a massive increase in external debt.
Pakistan’s total external debt increased by Rs6.8 trillion or 35% year on year to Rs26.5 trillion at the end of September. The federal government’s external debt increased to Rs18 trillion in one year, excluding IMF loans. External debt increased by Rs1.3 trillion, owing primarily to the depreciation of the rupee and the country’s efforts to build foreign currency reserves through borrowing.
According to the SBP, Pakistan’s IMF debt increased by 44% in one year to Rs1.7 trillion by the end of September. Despite the fact that the IMF has disbursed approximately $2 billion less than its scheduled releases during this period, this is the case.
The federal government’s total domestic debt increased by Rs5 trillion, or 19%, in one year to Rs31.4 trillion.
The main reasons for the increase in public debt were lower-than-expected tax collection, steep currency depreciation, high interest rates, rising expenditures, losses incurred by state-owned enterprises, and debt mismanagement.
According to the central bank, the average exchange rate on the last day of September 2022 was Rs228 to a dollar, reflecting a 57.4% depreciation in just one year. This had a significant effect on the government’s external debt.
The cost of debt servicing has skyrocketed as a direct result of the growing mountain of debt. Debt servicing amounted to Rs1 trillion in just one quarter of the current fiscal year. According to the government’s revised estimates, the cost of debt servicing may exceed Rs4.7 trillion, which is approximately Rs750 billion higher than the budgeted figure.