KARACHI: The central government’s total debt increased by 11.5 per cent 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.

The State Bank of Pakistan’s latest report on government’s total debts showed the external debts also increased significantly by Rs1.3 trillion in a year’s time mainly on account of appreciation of US dollar against local currency.

However, the domestic debt of the central government increased by Rs70 billion in July-August period. The domestic debts increased to Rs26.335tr in August compared to Rs26.265tr in June.

The rising debt creates higher debt servicing which eats up most of the tax revenue while it also reduces the development funds. Each year the government borrows more to repay debts and meet the fiscal gap -- the difference between expenses and revenues.

For the first time in 10 months, the SBP report shows, the central government’s total debts declined by Rs99bn, or 0.2pc, to Rs39.771 trillion in August compared to Rs39.870tr in July.

The government’s total debts increased by Rs4.111tr during a year as it reached Rs39.771tr in August compared to Rs35.660tr in August 2020, an increase of 11.5pc.

The external debts have been increasing with aggressive borrowings by the government, but one of the main reasons is the steep devaluation of the rupee against US dollar. The rupee lost over 11.5pc since May 7 against the greenback.

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.

Published in Dawn, October 6th, 2021