KARACHI: The federal government’s domestic and external debts collectively jumped by Rs2.24 trillion during the first five months of this fiscal year, reported the State Bank of Pakistan (SBP) on Monday.

Under pressure of low revenue collection, the government has been borrowing excessively to meet its growing domestic expenses while the widening of current account deficit has forced it to seek dollars to meet the external gap.

Total debts of the government rose to Rs26.452tr ­during 5MFY19 — an increase of Rs2.24tr or 9.25 per cent over the period.

During this period, the government’s domestic debt increased by Rs907bn to Rs17.323tr. Meanwhile, foreign debt witnessed an even sharper increase as external borrowing shot up by Rs1.334tr to reach Rs9.13tr.

The dollar appreciation against the rupee from Rs121.5405 during June-end to over Rs140.2686 by end of November ­— representing an over 15pc rise — was ­an­­other reason for the sharp jump in external borrowing figures. However, much of the gain seems to be fresh ­borrowing.

The government increased its domestic debts through short-term borrowing, relying mainly on the treasury bills; short-term debt increased by Rs1.168tr to Rs10.057tr in 5MFY19. It also points to government’s heavy dependence on the central bank to for its rupee borrowing.

However, size of the federal government bonds significantly decreased as borrowing through bonds fell by Rs333bn to Rs3.467tr in 5MFY19. During this period, the government did not accumulate much through National Saving Scheme either as it edged up by a mere Rs3.3bn to Rs2.733tr.

At the same time, the government is desperately seeking all possible sources of funding to meet the external gap as current account. The country has received $2bn so far from Saudi Arabia, while the country expects to get more dollars from UAE and China. The accumulation of greenback would increase the size of external debt as well as its servicing.

Published in Dawn, January 8th, 2019