KARACHI: The central government’s total debt increased by 11.5 percent in August this year from August 2020 while the external debt (in terms of rupees) increased by 8pc in the first two months of 2021-22.
According to the State Bank of Pakistan’s latest report on the government’s overall debts, external debts grew by Rs1.3 trillion in a year, owing mostly to the strengthening of the US dollar versus the local currency.
However, the federal government’s internal debt grew by Rs70 billion in July-August. Domestic debts climbed to Rs26.335tr in August, up from Rs26.265tr in June.
As debt levels rise, debt payment costs rise, consuming the majority of tax revenue and reducing development funding. Every year, the government borrows additional money to pay down debts and close the fiscal deficit (the difference between spending and revenue).
According to the SBP report, the central government’s total debts fell for the first time in ten months in August, falling by Rs99 billion, or 0.2 percent, to Rs39.771tr from Rs39.870tr in July.
The government’s overall indebtedness grew by Rs4.111tr in a year, reaching Rs39.771tr in August from Rs35.660tr in August 2020, an 11.5 percent rise.
External debts have been rising as a result of the government’s aggressive borrowing, but one of the primary causes is the rupee’s rapid depreciation versus the US dollar. Since May 7, the rupee has lost almost 11.5 percent against the dollar.
The SBP’s report shows the external debt increased in July-August mainly on account of sharp appreciation of US dollar against the rupee. The total external debt in August was Rs13.436tr compared to Rs12.432tr in June, an increase of Rs1.004tr. Within a couple of months the external debt increased by over Rs1tr reflecting the impact of rupee depreciation.
The external debt was Rs12.123tr in Aug 2020, however, it rose 10.8pc to Rs13.436tr in August, an increase of Rs1.313tr.
The government borrowing through Pakistan Investment Bonds (PIBs) was the highest from any single source. However, it declined during the last two months by Rs464bn. The PIBs were of Rs14.126tr on August compared to Rs14.590tr in June.
However, the PIBs were increased by Rs735bn during a year to Rs14.126tr in August compared to Rs13.391tr in Aug 2020.