According to the latest statistics released by the State Bank of Pakistan (SBP), the total debt of the central government surged by 34.1% year-on-year, reaching Rs58.6 trillion by the end of April. On a month-on-month basis, the increase was 2.6%.
The domestic debt accounted for 62.3% of the total, amounting to Rs36.5 trillion, while the remaining 37.6% was external debt, totaling Rs22 trillion.
The data revealed an annual increase of 49.1% in external debt, but there was no change in the external debt figure from the previous month. Among the components of domestic debt, the largest share was held by federal government bonds, representing nearly Rs25 trillion in loans.
?Other significant contributors to domestic debt included short-term loans of Rs7.2 trillion and unfunded debt of Rs2.9 trillion, which included funds borrowed through National Savings Schemes.
The funds obtained through federal government bonds witnessed a rise of 31.6% compared to the previous year, while the stock of short-term loans increased by 29.4%.
Pakistan currently faces a prolonged balance-of-payments crisis, with foreign exchange reserves covering only a month’s worth of import bills. Simultaneously, the country is grappling with the challenges of domestic debt servicing, as the interest rate has reached unprecedented levels amidst record-high inflation.
Mohammed Sohail, CEO of Topline Securities, pointed out that the mark-up expense in the fiscal year 2023-24 alone will exceed the federal budget of 2020-21. He further stated that the interest on loans, primarily local debt, has more than doubled in the span of two years.
This growing burden on debt servicing hampers the government’s ability to allocate sufficient funds for critical sectors such as health, education, and infrastructure.
Additionally, domestic debt servicing has become a major concern for Pakistan due to the unprecedented rise in interest rates and record-high inflation. The mark-up expense projected for the fiscal year 2023-24 alone is expected to surpass the federal budget of 2020-21.