Foreign debt ratio rises to 38.3% of total public debt in a year

ISLAMABAD: The dynamics of total public debt have witnessed an alarming development as the ratio of foreign debt has shot up from 36.9% in FY22 to 38.3% in FY23.

The Ministry of Finance’s Annual Debt Review and Public Debt Bulletin FY2023 shows that total public debt peaked at Rs62.88 trillion till the end of June 2023 against Rs49.2 trillion, indicating that the total public debt increased by Rs13.64 trillion during the last fiscal year 2022-23 in the tenure of Pakistan Democratic Movement (PDM) coalition government.

The total outstanding guarantees to public sector enterprises went up to Rs3.5 trillion in FY23 against Rs2.9 trillion in the last financial year FY22. During FY23, the government issued fresh/rollover guarantees aggregating to PKR 584 billion or 0.7% of GDP.

The guarantees issued to the oil and gas sector went up at a phenomenal pace as it increased from Rs52 billion in FY22 to Rs166 billion in FY23, indicating a massive surge in guarantees.

However, the guarantees issued against commodity operations are not included in the stipulated limit of 2% of GDP as the loans are secured against the underlying commodity and are essentially self-liquidating. They are issued against the commodity financing operations undertaken by the Trading Corporation of Pakistan (TCP), Pakistan Agricultural Storage & Services Corporation (PASSCO), and provincial governments. The outstanding stock of commodity operations was PKR 1,486 billion at the end of June 2023.

In an alarming development, the ratio of domestic debt to total public debt in percentage has gone down from 63.1% in FY22 to 61.7% in FY23, but at the same time, the ratio of foreign debt has gone up from 36.9% to 38.3%, showing an increase in the ratio of foreign loans by 1.4%.

The incidence of foreign loans going up clearly indicates that the pace of accumulation of foreign debt has outpaced domestic debt mainly because of massive depreciation on account of the exchange rate.

Despite the net reduction in the stock of external debt (in USD) during FY23, the share of external debt in total public debt increased from 37% at the end of June 2022 to 38 per cent at the end of June 2023.