ISLAMABAD: A press release issued by the Ministry of Finance stated that the government borrowed only Rs 4.11 trillion to finance its budget deficit.
The press release further stated that the finance division lays before the National Assembly the debt policy statement and fiscal policy statement every year to fulfill the requirements laid out under Section 6 and 7 of the Fiscal Responsibility and Debt Limitation Act 2005. The recent statements cover the 15-month period including FY 2018-19 and first quarter of FY 2019-20 and contain all factual information with respect to debt and fiscal performance over the stated period.
The figure of increase in total debt and liabilities by Rs 11.61 trillion being reported in the media needs to be properly interpretedThe figure of Total Debt and Liabilities consists of the following five components:
- Total Public Debt
- Public Sector Entities’ (PSE) Debt
- Debt for Commodity Operations
- Foreign Exchange Liabilities of State Bank of Pakistan (SBP)
- Private Sector’s External Debt
Out of the total increase of Rs 11.61 trillion in Total Debt and Liabilities during Jul 2018 – Sep 2019,
- Rs 3.54 trillion (31% of the increase) is due to currency depreciation which is a consequence of the misplaced exchange-rate, industrial, and trade policies of the previous government that led to large and unsustainable current account deficits and ultimately to sharp exchange rate adjustment;
- Rs 3.13 trillion (27% of the increase) is on account of cash balances and SBP’s foreign exchange liabilities. It should not be interpreted as Debt because it is offset by cash balances of government and liquid assets of SBP.
- Rs 4.11 trillion (35% of the increase) has been borrowed for financing of fiscal deficit;
- Rs 0.47 trillion (4% of the increase) has been borrowed by PSEs for spending on their financing needs;
- Rs 0.08 trillion (-1% of the increase) has been retired on account of commodity operations which is a welcome development;
- Rs 0.25 trillion (2% of the increase) is due to accounting adjustment due to difference in realized value and face value of long-term bonds issued during this period;
- Rs 0.18 trillion (2% of the increase) has been borrowed by private sector from external sources which is a healthy sign indicating private sector’s capacity to borrow from abroad for domestic investments.