KARACHI: The central government’s total debt has increased by 21.7 per cent to Rs38.7 trillion during the last two years with a major rise in domestic debt.

The data released by the State Bank of Pakistan (SBP) on Monday showed that during the past couple of years, the government’s domestic and external debts stood at Rs38.69tr at the end of the fiscal FY21 compared to Rs31.78tr in FY19. The debts in FY20 were Rs35.1tr.

The external debt (in terms of rupees) did not show much difference as it rose to Rs12.42tr compared to Rs11.055tr in FY19. However, the government’s external debt did not include loans from the International Monetary Fund and foreign exchange liabilities.

The central government’s domestic debt went up by 26.7pc during the past two years making it more difficult to bear the enlarging size of debt servicing which eats up one third of the ann­ual budget of the country.

According to the SBP, the domestic debt increased by much higher speed compared to external debt. The slower growth of external debt could be the result of very low current account deficit of 0.6pc of GDP in FY21.

The central government’s domestic debt reached Rs26.265tr at the end of fiscal FY21 compared to Rs23.282tr in FY20, showing an increase of 12.8pc. It was up by 26.7pc compared to Rs20.732tr in FY19. During the last two years the domestic debt rose by Rs5.533tr.

Within domestic debts, the long-term debt jumped to Rs19.556tr in FY21 compared to Rs17.7tr in FY20 and Rs15.23 in FY19.

The government relied heavily on long-term domestic debt, mostly Pakistan Investment Bonds (PIBs), which has increased to Rs14.59tr at the end of FY21 compared to Rs10.933tr in 2019.

Foreign investors have also been allowed to invest in domestic bonds like PIBs and treasury bills which increased the investment while the government found it easy to accumulate more debts to bridge the fiscal gap.

The country’s debt to GDP ratio is much higher than the limit of 60pc. Analysts believe the current ratio is 78pc of GDP.

The worst part of this rising debt is the increasing size of repayments which eats up a major part of public sector development plan depriving the country from investments and growth.

The external debts increased by 8.2pc during a year, but the debt servicing declined during FY21, the SBP reported.

The data shows that the external debts increased by $7.232 billion to $95.117bn at the end of fiscal year FY21. The external debt at the end of FY20 was $87.885bn.

However, the external debt servicing decreased by $1.154bn to $13.242bn in FY21 from $14.578bn in FY20.

The debt servicing declined because of non-payments on many external accounts in FY21. Due to spread of Covid19, some payments were delayed by the donor countries and donor organisations. The government requires about $20bn during FY22 for making payments.

Published in Dawn, August 31st, 2021