ISLAMABAD: The debt stock of Khyber Pakhtun­khwa (KP) has surged by more than 28pc in a single year to almost Rs680 billion, resulting in deterioration of its risk indicators and seriously hampering its development potential.

Informed sources told Dawn that international lenders working with the KP government have warned of serious repercussions, including solvency issues beyond March 2025 unless corrective measures were introduced.

This happens as its leadership is focused on political issues, particularly repeated rallies to the federal capital, rather than working on the advice of its financial team for course correction and help improve the living standards of the population gravely affected by extended periods of terrorism-related events and law and order situations.

“The outstanding debt portfolio as of June 30, 2024 increased to Rs679.547bn, representing a 28.04pc (about Rs149bn) increase from the outstanding amount of Rs530.723bn as of June 30, 2023”, conceded the KP’s finance department in its latest debt statistics bulletin.

Repayments also go up, but interest component surges 110pc

It attributed the deterioration to two key factors, including the 14.31pc increase in net receipts (disbursements less principal repayments) or Rs75.968bn and the increase in foreign currency exchange rates, which had a weighted average impact of 13.73pc.

Informed sources said the international lenders had indicated trouble for the KP government.

The province’s economic growth has been poor despite having the third-largest provincial economy in Pakistan.

Some concerns international lenders raise include weak public financial management, limited revenue generation, high dependence on federal transfers and increasing debt servicing costs.

“These concerns have led international lenders to express caution when dealing with the KP government”, said a concerned economist advising the provincial government to address “these issues to improve its financial management and revenue generation capabilities”.

The provincial government bulletin explained that Pakistani rupee lost 13.73pc (Rs72.868bn in absolute terms) of its value against foreign currencies between July 2023 and June 2024.

“This means that even without taking on new loans, the province’s existing foreign debts required more Pakistani rupees to repay, which added to the overall debt burden”.

Secondly, there was an increase of 14.31pc in debt stock due to net loan disbursements from already signed loan agreements with international lenders for various projects and programmes, which stood at Rs75.968bn.

Currently, the province has 107 loans taken for various projects from international lenders.

Of these, 32 loans are still active, meaning the loans are in the grace period, allowing the province to continue withdrawing funds for these projects.

The other 75 loans are closed, which means the grace period has ended, no more funds can be withdrawn, and the province has started paying back the principal amount.

From July 2023 to June 2024, KP made total debt payments of Rs38.734bn. This included Rs24.782bn to repay the principal amount and Rs13.951bn in interest.

For 2024-25, the KP government has budgeted Rs67bn for debt payments, with Rs40bn for principal repayments and Rs27bn for interest payments.

Moreover, during the FY24, only one loan was signed with the Asian Development Bank (ADB) on Oct 16, 2023, for the Food Security Project worth $80 million (Rs22.147bn based on an exchange rate of 276.8356).

The loan has a total duration of 25 years, consisting of a five-year grace period followed by a twenty-year repayment term.

The bulletin showed that not only did the debt stock increase by Rs149bn (28pc) to Rs680bn by June 2024, but the debt repayment also surged over 40pc to Rs38.73bn from Rs27.643bn.

More alarmingly, while the principal repayments increased by 18pc, interest payments surged by almost 110pc to Rs13.95bn.

Of this, the variable interest on 15 loans amounted to Rs9.6bn in FY2023-24 compared to Rs4.3bn in the fixed interest rate on 92 loans.

Published in Dawn, December 21st, 2024