Public debt increases by 8% in 10 months of the current fiscal year

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KARACHI: Pakistan’s public debt increased by Rs2.5 trillion or 8% in the 10 months of the ongoing fiscal year as the government increased borrowing to plug the spending and revenue gap, showed data by the State Bank of Pakistan.

Public debt stood at Rs34.3 trillion as of April 30, compared with Rs31.9 trillion as of June-end last year. External debt rose to Rs11.2 trillion from Rs11.1 trillion.

A surge in the pace of public debt was driven by the government’s funding requirements amid widening fiscal deficit and decline in the value of the rupee against the dollar.

The budget deficit is likely to shoot up to 9.2% of GDP in FY2020 due to the implications of COVID-19 on both revenues and expenditures. Fiscal deficit was reported at 3.8% of GDP in the nine months of the current fiscal year.

Analysts said a large stimulus to mitigate the impact of coronavirus on the economy could increase the government borrowing needs and hence lead to a big budget deficit and public debt in the current fiscal year.

The government announced over one trillion rupees of stimulus to help fight over fallouts of lockdown following the coronavirus outbreak.

Even before the coronavirus crisis, the tax machinery struggled to mobilise revenue and tax targets were revised more than twice. The International Monetary Fund expected the country’s public finances to come under pressure due to a decline in tax revenues.

Analysts expect high public debt would push the budget deficit above the target in the new fiscal year “and meeting budgeted fiscal deficit target of 7.0% of GDP for FY21 looks far-fetched”.

Brokerage Optimus capital management in a report said the next year budget, announced last week, marks the end of a brief expansionary detour in the fourth quarter of the current fiscal year to absorb the initial shock of the COVID-19 pandemic.

“Constrained by high public indebtedness and IMF program requirements, the government is aiming for a primary fiscal deficit of 0.5% in FY21, sharply lower than an estimated 2.6 percent in FY20.”

Overall fiscal deficit target is set at 7.0% for FY21 versus 9.1% projected for FY20.

The brokerage said the targeted reduction in fiscal deficit is predicated on 19.4% growth in revenues and only 4.7% projected increase in expenditure from their respective revised estimates for FY20.

“However, except for higher levies on petroleum, new revenue measures are conspicuous by absence and achieving lofty tax targets seems entrusted to economic recovery and better tax administration.”

It said although the fiscal policy is rarely entrenched in realism, the exceptional uncertainties of yet unrelenting COVID-19 pandemic make serial revisions to the next year’s budgetary estimates inevitable.

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