External Debt and Liability (EDL) stock provisionally stood at $91 billion at end February 2018, out of which external public debt was $69.3 billion, revealed the Economic Survey 2017-18.
Disbursements against external public debt were cumulatively recorded at around $7.3 billion during the first eight months of the current fiscal year while external public debt servicing was $3.338 billion during the said period.
Segregation of this aggregate external debt servicing number shows repayment of $2.420 billion on maturing external public debt stock and interest payments of $918 million.
Total public debt provisionally stood at Rs 23.608 trillion at end February 2018 while total debt of the government was Rs 21.552 trillion.
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The gross domestic debt recorded an increase of Rs 1. 093 trillion during first eight months of the current fiscal year while external debt increased by Rs 1.107 trillion.
In addition to the financing of fiscal deficit,
(i) increase in credit balances of the government with banking system;
(ii) depreciation of Pak Rupee against US Dollar; and
(iii) depreciation of US Dollar against other international currencies contributed towards the increase in debt.
The survey noted that total public debt was Rs 22.82 trillion by the end of December 2017 while showing an increase of Rs 1.413 trillion during first six months of the current fiscal year (2017-18).
Out of this total increase of Rs1.413 trillion, increase in domestic debt was Rs 582 billion while government borrowing for the financing of fiscal deficit from domestic sources was Rs 412 billion, indicating an increase in government credit balances with the banking system during the period under review. Increase in external debt contributed Rs 830 billion to the public debt while government borrowing for the financing of fiscal deficit from external sources was Rs 384 billion.
The survey further noted that gross domestic debt was recorded at Rs 15.437 trillion while net domestic debt Rs 13.496 trillion by December 2017. Gross domestic debt registered an increase of Rs 582 billion during first half of current fiscal year while government borrowing from domestic sources for financing of fiscal deficit was Rs 412 billion during the said period. This differential is mainly attributed to increase in government credit balances with the banking system.
Public debt servicing was recorded at Rs 980 billion during the first half of current fiscal year against the annual budgeted estimate of Rs 1.689 trillion. Public debt servicing consumed nearly 41 percent of total revenues during the first half of current fiscal year, remaining at the same level recorded during the corresponding period last year.
Domestic interest payments constituted around 69 percent of total debt servicing due to the higher volume of domestic debt in total public debt portfolio. Domestic interest payments were recorded at Rs 678 billion during the first half of the current fiscal year primarily driven by payments made against Pakistan Investment Bonds (Rs 229 billion), National Savings Schemes (Rs 169 billion) Market Treasury Bills (Rs 151 billion) and Market Related Treasury Bills (Rs 87 billion).
Floating debt recorded an increase of Rs 1.032 trillion during the first half of current fiscal year and stood at Rs 7,589 billion at end December 2017. The increase in floating debt was higher than the overall change in domestic debt as the government retired medium to long-term during the first half of the current fiscal year. The share of floating debt in overall public debt and domestic debt stood at 33 percent and 49 percent respectively at end December 2017 while it was 36 percent and 55 percent respectively at the end of 2012-13.
External public debt to GDP ratio decreased to 20.5 percent at the end of 2016-17 from 20.7 percent at the end of 2015-16 while it was 20.8 percent at the end of 2012-13, indicating a relative reduction in external debt burden of the country. Higher repayments coupled with the translational gain on account of appreciation of US Dollar against other international currencies resulted in the reduction of this ratio at the end of 2016-17. By end December 2017, this ratio stood at 21.4 percent.
The permanent debt was recorded at Rs 5,038 billion at the end December 2017 representing, a decrease of Rs 495 billion ongoing fiscal year. Over this period, the government set the auction of Rs 500 billion against the sale of PIBs in anticipation of upcoming maturities. These attracted subdued response participants as the market was expecting monetary tightening, however, p remained unchanged during the said period i.e. except for July 2017, all bids received against PIBs auctions during the first half fiscal year were rejected as the rates quoted by commercial banks were on a higher si as amounts were not substantial.
Pakistan tapped the international capital markets in December 2017, raising $2.5 billion via a dual tranche issuance which included a US$1 billion 5-year Sukuk and $1.5 billion 10-year conventional bonds. The conventional issuance was important, being the largest single tranche ever raised by Pakistan at the lowest coupon rate of 6.875 percent for a 10-year bond. The order book for Pakistan’s sovereign paper was over US$ 8 billion. However, the government decided to pick up only $ 2.5 billion in order to ensure low final yields on Sukuk and Eurobond. Such oversubscription and overwhelming response of global investors is evidence of trust and confidence of international capital markets in the economic policies of the government. The orders were placed by numerous blue-chip institutional international investors from all across the globe. Around 44 percent of the orders were placed by investors from Europe, 24 percent from Asia, 20 percent from North America, 8 percent the Middle East and 12 percent from other regions.
Floating debt recorded an increase of Rs 1,032 billion during the first half of current fiscal year and stood at Rs 7,589 billion at end December 2017. The increase in floating debt was higher than the overall change in domestic debt as the government retired medium to long during the first half of current fiscal year.
In Pakistan, external loans are contracted in various currencies; however, disbursements are effectively converted into Pak Rupee. Since Pak Rupee is not an internationally traded currency, other international currencies are bought and sold via selling and buying of US Dollar. Hence, the currency exposure of foreign debt originates from two sources: US Dollar/other foreign currencies and Pak Rupee/US Dollar. Thus, any movement in international currencies (in which debt is contracted) and PKR vis-Ã -vis US Dollar can change the dollar and Pak Rupee value of external debt respectively. While it must be taken into account that does not carry currency risk since it is denominated in Pak Rupee. In addition to net external inflows, depreciation of US Dollar against other international currencies resulted in the increase in US Dollar value of external public debt, primarily driven by the depreciation of US Dollar against Euro and SDR by 4.9 percent and 2.3 percent respectively. In Dollar terms, external public debt recorded at US$ 66.9 billion at end December 2017, registering a growth of 6.9 percent over June 2017 while in Pak Rupee terms, the external public debt increased by 12.6 percent to reach at Rs 7382 billion at the end of December 2017. This difference in growth is primarily attributed to Pak Rupee depreciation against US Dollar during the first half of current fiscal year.
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