Pakistan Industrial and Traders Association Front (PIAF) has called for keeping check on government expenditure and high cost of debt servicing, as the federal government debt has surged to a staggering Rs64 trillion, reflecting an alarming increase of over 29% in just one year.
PIAF Chairman Faheemur Rehman Saigol said that this unsettling trend has raised concerns about fiscal sustainability and the adverse impacts of steep currency devaluation come at a time when the World Bank has cautioned Pakistan about the growing risks of its macroeconomic framework.
Quoting the State Bank of Pakistan report, he said that the federal government’s debt has soared by Rs14.5 trillion, constituting a substantial 29.2% rise compared to the same period last year.
This rapid escalation in debt is widely seen as unsustainable, yet corrective measures to curb this alarming trajectory have not been implemented.
The PIAF Chairman said that the debt burden is gradually increasing because of insufficient tax revenue collection that forced the government to borrow from the domestic and external resources to finance the soaring fiscal deficit.
For the past one and half year, the country is facing a serious financial crunch and continually relying on borrowing to meet its financial needs.
The growing debt stock carries significant fiscal costs and exposes the country to debt vulnerabilities, as highlighted in the Pakistan Development Update report by the World Bank.
He also emphasised that persistent fiscal deficits and debt repayments have resulted in consistently high annual gross financing needs, averaging 27% of GDP over the past decade.
This level is notably higher than the emerging market threshold of 15%.
In the past two decades, Pakistan has witnessed two consecutive years of the highest budget deficits in 2022 and 2023.
The World Bank pointed out that for the current fiscal year, a budget deficit of 7.7% of the GDP is anticipated, a staggering Rs1.3 trillion above the government’s target.
The World Bank expressed concerns over these persistent large budget shortfalls, which have led to the rapid accumulation of public debt. This, in turn, has crowded out private investment and contributed to macroeconomic volatility.
The SBP data unveiled an alarming 39% increase in the external debt of the federal government, reaching Rs24.2 trillion within a year. A substantial Rs6.7 trillion increase in external debt was primarily attributed to currency depreciation. As of August 2022, external debt stood at Rs17.4 trillion, excluding the International Monetary Fund (IMF)’s liabilities.
