*ISLAMABAD: *
The federal government’s debt grew at a double-digit pace to Rs35.8trillion by November 2020 on an annualised basis, an addition of Rs3.7trillion in one year, as it faces pressure to reduce dependencylink onshort-term debt to minimise the refinancing risks.
The central government debt, which was Rs32.1 trillion in November 2019,surged to Rs35.8 trillion within a year, reported the State Bank of Pakistanlink(SBP)on Monday. There was an increase of Rs3.7 trillion or 11.5% in the debtstock, according to the central bank.
The Rs35.8 trillion debt was exclusive of the International Monetary Fund(IMF) debt as the Fund’s loan was recorded on the balance sheet of centralbank.
The debt stock is also exclusive of the liabilities that the governmentindirectly owes to creditors. Thus, the gross public debt is far higherthan the central government debt.
When Imran Khan became prime minister, the central government’s debt wasclose to Rs24.2 trillion and the last Pakistan Muslim League-Nawaz (PML-N)government added Rs5.65 billion a day to the public debt.
On average, per day addition to the public debtlinkjumped to Rs13.2 billion since the Pakistanlink Tehreek-e-Insaf (PTI) came to power.
The central government debt comprises long and short-term domestic andexternal debt.
The SBP report showed that the central government’s total domestic debtincreased from Rs21.4 trillion in November 2019 to Rs24.1 trillion byNovember of current fiscal year. There was a net addition of Rs2.7 trillionor 12.6% to the domestic debt.
The report showed that a major increase in the federal government’s debtwas on account of long-term debt, which swelled from Rs16.6 trillion toRs19.1 trillion in one year. There was an increase of Rs2.5 trillion or 15%in the long-term debt.
It was largely because of the government’s decision to convert itsshort-term borrowinglinkthe central bank to long-term debt. This helped increase the maturityperiod of debt but also increased the cost of debt servicing.
Sources said that the government was facing pressure from the IMF toenhance the maturity period of its debt. Due to the reason, it had toaccept bids in the last bond auction, which were higher than the previousborrowing rates.
In the latest auction in January, the Ministry of Finance accepted bids forfive-year and 10-year bonds at 1% higher rates than the previous borrowing.The cut-off yield of both five-year and 10-year bonds rose 1% to 9.53% and9.99% from the last auction.
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The market has taken this as an indication of the increase in policy rateby the central bank in coming months as the government is gearing up torevive the stalled IMF loan programme.
Short-term domestic debt increased at a relatively slower pace, from Rs4.8trillion to Rs5 trillion by November 2020 due to shift in borrowing tolong-term instruments.
The federal government’s debt, acquired through the sale of Market TreasuryBills (MTBs) to commercial banks, increased from Rs4.2 trillion to Rs5trillion, a surge of Rs768 billion.
External debt of the central government increased from Rs10.7 trillion toRs11.7 trillion by the end of November 2020, an increase of Rs991 billionor 9.2% in one year.
The government’s debt is growing at a double-digit pace due to itsinability to enhance revenue at rates that are sufficient to absorb thegrowing current expenditures. The Federal Board of Revenue’s (FBR) taxcollection grew at less than 5% rate in the first half of current fiscalyear.
The federal budget deficit soared to nearly Rs1 trillion in the first fivemonths of current fiscal year, despite a continued squeeze on defence anddevelopment spending and keeping some expenditures off the books.
Overall, the total federal government expenditures increased 14.5% to Rs2.4trillion during the July-November period. Expenses were higher by Rs300billion compared to the same period of last year.
Out of the increase of Rs300 billion, an additional spending of Rs244billion was on account of debt servicing, which means other expenditures ofthe federal government remained almost at the same level compared to lastyear.
During the July-November period, the net increase in the central governmentdebt was Rs715 billion, which was in line with the federal budget deficit.
The difference between Rs1 trillion federal budget deficit and Rs715billion increase in debt was because of cash surplus generated by provincesand benefit of currency appreciation.
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