ISLAMABAD: The government on Friday confirmed to have added about $15.3 billion to the country’s external debt, violating prudent borrowing limits under the Fiscal Responsibility and Debt Limitation Act (FRDLA) and promised to reduce public debt significantly by 2015-16.
This is part of Medium-Term Debt Management Strategy (MTDS 2013-14 to 2017-18) released here on Friday after conclusion of third review of the IMF programme in Dubai. “The public debt to GDP ratio is projected to be brought down to 55.2pc by 2015-16,” said the ministry of finance.
It said the debt ratio was expected to be around 52pc by end 2017-18 which would be well below the threshold of 60pc as mentioned in the FRDLA.
The MTDS said the country’s external debt was estimated to touch $72 billion (Rs7.202 trillion) at the end of this fiscal year on June 30 against $57bn (Rs5.7tr at current exchange rate) same period last year.
It said the external debt stood at 24.9pc of GDP on June 30, 2013 which had now gone up to 27.7pc of GDP by end of this year.
The government said it had violated the requirements of the FRDLA. It said the government was required to reduce revenue deficit to zero by June 30, 2008 and then maintain revenue surplus but the revenue balance had been running in the negative since 2005.
Giving reasons for this violation, it quoted increasing exogenous and endogenous challenges including campaign against extremism, fragile law and order, continued energy shortages, narrow tax base, non-materialisation of sufficient external inflows and unprecedented floods of 2010, rains in 2011 and increasing debt servicing requirement.
Also, it said the government was required to keep total public debt below 60pc after June 2013 but this provision was also violated. “Public debt to GDP was recorded at 62.7pc as on June 2013. Crossing this threshold by 2.7pc was mainly due to the actual deficit being higher than projected”.
It said the law also required the government that spending on health and education shall be doubled to 1pc and 3.2pc respectively from July 2003 but conceded that this target was also not achieved.
The portion of total debt which has a direct charge on government revenues as well as the debt obtained from IMF is taken as public debt.
Public debt stock recorded at Rs14,366bn as on June 30, 2013 representing an increase of Rs1,699bn or 13pc higher as compared with last fiscal year.
This increase in public debt is attributed to financing of fiscal deficit which was recorded at 8pc of GDP against the budgeted estimate of 4.7pc.
Pakistan’s total public debt as a percentage of revenues stood at 482pc during 2012-13, whereas, public debt around 350pc of government revenues is generally believed to be within the bounds of sustainability.
Revenue deficit stood at Rs649bn or 2.8pc of GDP in 2012-13 which reflects the non-availability of fiscal space for undertaking development spending. Primary deficit stood at Rs814bn or 3.6pc of GDP in 2012-13 which essentially implies that the government is borrowing to pay interest on the debt stock.
Refinancing risk is probably the most significant in Pakistan’s debt portfolio, driven primarily by the concentration of domestic debt in short maturities, the finance ministry said.
Around 34pc of total public debt stock is denominated in foreign currencies, exposing Pakistan’s debt portfolio to exchange rate risk. Adjusted for Special Drawing Rights (SDR), the main exposure of exchange rate risk comes from US dollar denominated loans (14pc of total debt), followed by Japanese yen (9pc) and loans denominated in euro (7pc).
Depreciation of the rupee would affect both the stock of government debt as well as debt servicing flows.
Exposure to interest rate changes is a substantial risk given the short term nature of domestic securities and external borrowing in floating rates. Around 67 per cent of total domestic debt is exposed to interest rate refixing within one year as compared to 25 per cent of external debt.
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