Public Debt

Public debt management is the process of developing and implementing a multi-pronged

debt strategy to ensure that both the level and rate of growth of public debt are

fundamentally sustainable over the medium to long term, while meeting the government's

financing needs and payment obligations at the lowest possible cost, while maintaining a

prudent level of risk. The public debt is a measure of the government's debt. It covers

both rupee and foreign currency-denominated debt. Domestic and external debt make up

public debt. Each of these sorts of debt has its own set of advantages and disadvantages,

with a trade-off between borrowing costs and risk exposure that must be considered and

balanced in order to ensure ample and timely access to cost efficient funding.

5 Years Performance of Pakistan:

2015-2016:

At the end of June 2015, the public debt was Rs. 17,381 billion, or 63.5 percent of GDP,

down from 63.8 percent the previous year. The improvement in fiscal and current account

balances, as well as a revaluation gain on the foreign public debt portfolio, are primarily

responsible for the decrease in the public debt to GDP ratio. In 2014-15, the public debt

increased by Rs. 1,389 billion, compared to Rs. 1,673 billion the previous fiscal year.

Domestic debt increased by Rs. 1,279 billion, while external debt increased by Rs. 110

billion.

2016-2017:
As of end-March 2016, the public debt stood at Rs.19,168 billion, up Rs.1,787 billion

over the previous fiscal year's first nine months. Domestic debt increased by Rs.1,200

billion, while government borrowing from domestic sources to finance the budget deficit

increased by Rs.786 billion. The growth in government credit balances with the State

Bank of Pakistan and private banks is primarily responsible for this disparity. Similarly, a

surge in external debt increased national debt by Rs.588 billion.

2017-2018:
At the end of June 2017, the public debt was Rs.21,407 billion, while the overall

government debt was Rs.19,634 billion. Despite a bigger fiscal deficit in 2016-17, the

public debt climbed by Rs.1,729 billion, which was much less than the Rs.2,297 billion

rise seen in the previous fiscal year. Domestic debt accounted for 71% of the rise in

public debt, while external debt accounted for 29%. This was in keeping with the

government's budget deficit financing, with domestic sources accounting for roughly

71% of the budget deficit and external sources accounting for the remainder. The rise in

public debt was smaller in absolute terms than fiscal deficit financing in 2016-17, which

can be attributable to:

The government used its deposits in the banking sector to pay off part of the State Bank

of Pakistan's in-year borrowings. Despite large inflows, the net addition to external public
debt (in Pak rupees) was less than the external financing of the fiscal deficit, owing to

revaluation advantages from the US dollar's advance versus other foreign currencies.

2018-2019:

Total public debt increased by Rs 831 billion in the first quarter of 2018-19, reaching Rs

25,783 billion at the end of September 2018. Domestic debt increased by Rs 504 billion,

while government borrowing for fiscal deficit financing from domestic sources increased

by Rs 331 billion, indicating an increase in government credit balances with the banking

system during the period under review; and external public debt increased by Rs 327

billion, while government borrowing for fiscal deficit financing from external sources

increased by around Rs 211 billion. This difference was mostly due to revaluation losses

when the Pakistani rupee depreciated versus the US dollar.

2019-2020:

Total public debt was Rs 35,207 billion at the end of March 2020, up from Rs 32,708

billion at the end of June 2019, a rise of Rs 2,499 billion in the first nine months of the
current fiscal year, while Federal Government borrowing for deficit financing was Rs

2,080 billion. This difference is primarily due to the depreciation of the Pakistani rupee

against the US dollar, an increase in the Federal Government's cash balances, and the

difference between the face value (which is used for debt recording) and the realized

value (which is recorded as budgetary receipt) of PIBs issued during the period.

2020-2021:

At the end of March 2021, total public debt was at Rs 38,006 billion, a rise of Rs 1,607

billion over the first nine months of the current fiscal year, a far smaller increase than the

Rs 2,499 billion seen during the same time previous year. The rise in overall public debt

in the first nine months of this fiscal year was even smaller than the borrowing of Rs

2,065 billion by the Federal Government to finance its fiscal deficit. The difference is

mostly due to a 9% increase in the value of the Pak Rupee versus the US Dollar, which

resulted in a drop in the value of foreign public debt when translated into Pak Rupees.
● During the first nine months of the current fiscal year, medium to long-term domestic

debt instruments (Pakistan Investment Bonds and Government Ijara Sukuks) accounted

for over 80% of net borrowing from domestic sources.

● During the current government's tenure, the profile of domestic debt has greatly

improved. Short-term debt as a proportion of total domestic debt fell to roughly 23% at

the end of March 2021, down from 54 percent at the end of June 2018.

● No fresh borrowing from the State Bank of Pakistan was done in accordance with the

government's promise (SBP). In reality, the government paid back Rs 569 billion to SBP

during the current fiscal year. During the recent two fiscal years, the total debt retirement

against SBP debt exceeded Rs 1.1 trillion.

● Prize bonds in the amounts of Rs 25,000, Rs 15,000, and Rs 7,500 were pulled from

circulation in order to strengthen the economy's paperwork. The holders have the option

of converting to premium prize bonds, replacing them with qualified National Savings

Certificates, or cashing them in at face value into their bank accounts.

● Pakistan successfully raised US$ 2.5 billion in a multi-tranche transaction of 5-, 10-,

and 30-year Eurobonds under its first-ever Global Medium Term Note Programme,

ending a three-year absence from the international capital market.

● At the end of March 2021, debt from multilateral and bilateral sources accounted for

more than 80% of the foreign public debt portfolio. During the previous two years, the

government's economic reforms have received widespread backing from international

development partners. This is likely to boost confidence and assist catalyse further
funding from development partners in the future years, easing the strain on local

resources.

● Pakistan has applied for the G-20 Debt Service Suspension Initiative (DSSI) for a 20-

month period (May 2020 - December 2021), which would help to delay the debt service

burden by roughly US$ 3.7 billion.

The government's medium-term goal is to reduce its "Gross Financing Needs (GFN)"

through a variety of measures, including I better cash flow management through a

treasury single account; (ii) lengthening domestic market maturities while considering

cost and risk trade-offs; (iii) developing a regular Islamic based lending programme; and

(iv) obtaining maximum available concessional external financing from bilateral and

multilateral development partners to benefit

Conclusion:

Pakistan's debt-reduction plan includes a commitment to run primary surpluses, keep

inflation low and steady, promote policies that favor stronger long-term economic

development, and adhere to an exchange rate regime based on economic fundamentals.

With a smaller budget deficit, public debt is expected to fall steadily, while the

government's attempts to alter the maturity structure will improve the debt's

sustainability.