Public debt climbs 4.28% in July-February FY2021

KARACHI: Pakistan’s public debt has increased by 1.5 trillion rupees, or 4.28%, in the eight months of this fiscal year, against a backdrop of increased government borrowing to fill the budget deficit.

Public debt stood at 36.612 trillion rupees at the end of February 2021, compared to 33.417 trillion rupees at the end of February last year. Debt stood at Rs.35-107 trillion in the period ending June 2020, according to central bank data released on Monday.

It rose sharply on the government domestic borrowing side, rising 6.43 percent to Rs 24.780 trillion, while government external debt only rose 0.06 percent to reach Rs 11.832 billion at the end of February. 2021.

Within domestic debt, long-term debt increased 9.88% to 19.454 billion rupees, however, short-term debt fell 4.51% to 5.326 billion rupees. The government finances its budgetary expenditure through the collection of taxes, profits from public enterprises and borrowing from external sources.

Banks also meet a large part of the state’s domestic financing needs. During the period from April to June 2021, the government aims to raise 4.7 trillion rupees by borrowing from treasury bills in the market and 825 billion rupees from Pakistani investment bonds, according to the auction schedule released on Monday by the SBP.

The government’s debt settlement strategy shows that it wants to borrow more on long-term securities, particularly by focusing on floating rate GDPs and Sukuk to meet its spending needs. This would help reduce the cost of government borrowing in times to come.

The government has raised 1.490 billion rupees in net funding during the first half (July-December) of the current fiscal year. It has raised 450 billion rupees through privatization, external subsidies and borrowing.

The amount recovered from domestic borrowing was Rs 1,040 billion in July-December for fiscal year 2021. The budget deficit increased to Rs 1,400 billion in July-December of the current fiscal year. The deficit as a percentage of GDP stood at 2.5%.

The World Bank said in its annual flagship South Asia Economic Focus report that Pakistan’s exposure to debt shocks will remain high over the medium term, as will Pakistan’s exposure to debt shocks. While fiscal consolidation efforts are expected to resume, the deficit is expected to remain high at 8.3 percent of GDP this fiscal year in part due to the settlement of arrears in the electricity sector, he said. For the next fiscal year, the WB has projected the budget deficit at 7.7% of GDP. The lender has projected the debt at 93.9% of GDP or 43 trillion rupees, predicting that it will rise to 94.4% in the next fiscal year. Public debt stood at 88% of GDP in the last fiscal year.

However, the Ministry of Finance in its update and monthly economic outlook said that the July-January fiscal results for fiscal year 2021 show that the fiscal consolidation policy has helped to preserve fiscal discipline, increase revenue and control spending.

On the revenue side, RBF tax collection continues to improve, exceeding the eight-month target of Rs 17 billion. The eight-month yield indicates that it would be

stay on track and the current exercise would eventually hit the target, he said.

“However, the increase in Covid infection and associated containment measures may pose certain challenges; in particular, the expenditure side can be under pressure.

Declining demand for government external financing in the context of a current account surplus, revaluation gains due to the appreciation of the rupee against the dollar, the availability of multilateral funds and the relief of principal payments by G-20 countries under the Debt Service Suspension Initiative contributed to the accumulation of external debt.

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