Pakistan’s total public debt was recorded at Rs. 44,366 billion at the end-March 2022, registering an increase of Rs. 4.5 trillion during the first nine months of the current fiscal year.
The Economic Advisor’s Wing of the Finance Division noted in the Economic Survey 2021-22 that the increase of Rs. 4500 billion during 9MFY22 was much higher when compared with the increase of Rs. 1.607 trillion witnessed during the same period last year.
It includes Rs. 1,047 billion of federal primary deficit, Rs. 2,118 billion interest on debt, Rs. 1,744 billion on currency depreciation and Rs. 409 billion on the government’s cash balance.
Apart from the financing of the federal fiscal deficit, the depreciation of the Pakistani Rupee (PKR) against the US Dollar by around 26 percent led to a significant increase in the value of external public debt when converted into PKR.
External Debt
The survey said that external public debt was recorded at $88.8 billion (Rs. 16.29 trillion) in end-March 2022, increasing by around $2.3 billion during the first nine months of FY22. This increase suggests that debt from multilateral and bilateral sources increased by $2.9 billion.
Gross inflows of around $1 billion were recorded from the International Monetary Fund (IMF) under the Extended Fund Facility (EFF), $0.8 billion from the Development Bank (IDB), and $3 billion in form of Saudi deposits. The debt stock of commercial loans registered a net decrease of around $1.5 billion. It was mainly due to repayment of maturity from Chinese commercial banks amounting to $2.3 billion in March 2022. However, this amount is expected to be received in June 2022.
The government raised $2 billion through international bond issuances ($1 billion Eurobonds in July 2021 and $1 billion Sukuk in January 2022) while it also repaid $1 billion against maturing Sukuk. Therefore, the stock of Eurobonds/Sukuks witnessed a net increase of $1 billion during the first nine months of the ongoing fiscal year. The stock of Pakistan Banao Certificates and Naya Pakistan Certificates cumulatively increased by $0.5 billion, and the stock of non-resident investment in Government securities (T-bills and PIBs) decreased by $0.6 billion.
Gross external loan disbursements were recorded at $12,779 million during the first nine months of 2021-22, including $4,929 million from multilateral, and $3,228 million from bilateral sources. The Saudi deposits amounted to $3,000 million, disbursements through international bonds amounted to $2,000 million, and commercial loans contributed $2,623 million in total disbursements.
Debt Servicing
External public debt repayments were recorded at $8,139 million during the first nine months of 2021-22 as compared with $5,148 million during the same period last year. This increase in repayments is primarily due to:
- resumption of debt repayment to bilateral creditors in the third quarter of 2021-22, which were deferred under the Debt Service Suspension Initiative (DSSI);
- $1,000 million International Sukuk maturity in October 2021; and
- higher repayment of commercial loan maturities.
Interest payments were recorded at $1,297 million during the first nine months of 2021-22 as compared to $1,080 million during the same period of the preceding year. The main factors which increased the external interest servicing during the ongoing fiscal year were:
- resumption of interest payments to bilateral creditors in the third quarter of FY2021-22, which were deferred under DSSI;
- increase in global interest rates; and
- higher interest servicing against commercial loan portfolio and Eurobonds.
The economic survey noted that external loans are contracted in various currencies, however, disbursements are effectively converted into PKR. Since the local unit is not an internationally traded currency, other international currencies are bought and sold via the selling and buying of the US Dollar.
Hence, the currency exposure of foreign debt originates from two sources: US Dollar/other foreign currencies and PKR/US Dollar. Any movement in international currencies (in which debt is contracted) and PKR vis-à-vis US Dollar can change the dollar and rupee value of external debt respectively. It must, however, be taken into account that domestic debt does not carry currency risk, since it is denominated in PKR.
Other Factors Impacting External Debt Movement
In addition to net external inflows, the movement in external public debt stock during the first nine months of the current fiscal year was influenced by the revaluation gain in US Dollar terms, owing to the appreciation of the greenback against other international currencies decreased the external public debt stock by around $1.6 billion.
This decrease was mainly driven by an appreciation of the US Dollar against the Japanese Yen by 10 percent, the Euro by 7 percent, the Pound Sterling by 6 percent, and Special Drawing Rights (SDRs) by 3 percent. This translational gain on account of the appreciation of the US Dollar against other international currencies was offset by the depreciation of the PKR against the US Dollar by around 17 percent which led to increasing the rupee value of external debt by around Rs. 2.3 trillion.
Domestic Debt
Domestic debt was recorded at Rs. 28,076 billion by end-March 2022, registering an increase of Rs. 1,811 billion during the first nine months of the current fiscal year.
Interest Servicing
Interest servicing was recorded at Rs. 2,118 billion against its annual budgeted estimate of Rs. 3,060 billion during the period in review. Domestic interest payments were recorded at Rs. 1,897 billion and constituted around 90 percent of total interest servicing, which is mainly attributable to a higher volume of domestic debt in the total public debt portfolio.
Permanent Debt
The survey noted that permanent debt mainly comprises medium to long-term instruments like Pakistan Investment Bonds (PIBs), Government Ijara Sukuks (GIS), and Prize Bonds. Permanent debt constituted 67 percent of the domestic debt portfolio and was recorded at Rs. 18,714 billion by end-March 2022, representing an increase of Rs. 2,803 billion during the first nine months of the ongoing fiscal year.
The bifurcation of this increase reveals that the government’s net mobilization through the issuance of PIBs and GIS was Rs. 1,939 billion and Rs. 1,111 billion, respectively, whereas a net retirement amounting to Rs. 178 billion and Rs. 70 billion was observed in stock of Bai-Muajjal Sukuk and Prize Bonds, respectively.
Floating Debt
Floating debt was recorded at Rs. 5,241 billion or around 19 percent of the total domestic debt portfolio at the end-March 2022. During the first nine months of the ongoing fiscal year, a reduction of Rs. 1,486 billion was witnessed in the stock of T-bills.
The stock of unfunded debt stood at Rs. 3,609 billion by end-March 2022, constituting around 13 percent of the total domestic debt portfolio. Unfunded debt recorded a net reduction of Rs 37 billion during the first nine months of the current fiscal year.
In addition to the above, the domestic debt also comprises:
- Naya Pakistan Certificates (held by residents only), which amounted to Rs. 37 billion at the end-March 2022; and
- SBP on-lending to Federal Government against IMF SDR allocation, which amounted to Rs. 475 billion at the end-March 2022.
