Pakistan’s public debt had reached Rs 16.235 trillion by the end of September 2014, showing an increase of 1.5 percent or Rs 239 billion during first quarter (July-September) of the ongoing financial year over the last year.

Public debt stock, which was recorded at Rs15.99 trillion on June 30, 2014, had increased by Rs 239 billion during July-September of 2014-15 and reached to Rs 16.235 trillion by the end of September 2014, according to latest Debt Policy Statement 2014-15. The public debt consists of external and domestic debt.

According to the break-up of Rs 16.235 trillion, the domestic debt stood at Rs 11.105 trillion and external debt at Rs 5.129 trillion.  Pakistan external debt had increased by $4.7 billion, as it reached to level of $65.6 billion in the previous year 2013-14 from $60.9 billion of the preceding year, according to latest Debt Policy Statement 2014-15. The EDL (External Debt and Liabilities) stock was recorded at $64.4 billion as on September 30, 2014.

External public debt recorded an increase of $3.5 billion despite hefty repayments of around $5 billion made during 2013-14 against external public debt. Government decision to re-engage with the IMF facilitated the resumption of inflows from IFIs (International Financial Institutions) as evident from increase in multilateral loans by $1.6 billion in 2013-14. Further, Pakistan successfully tapped international capital markets after a gap of 7 years and mobilised $2 billion through the issuance of Eurobonds.

Meanwhile, the country’s domestic debt recorded an increase of Rs.186 billion during first three months of current fiscal year and stood at Rs.11,106 billion at end September 2014. Domestic debt had registered at Rs 10.92 trillion during previous year 2013-14. The debt has shown increase of Rs1398 billion in last one year. The domestic debt could surge to Rs 11.105 trillion during current fiscal year.

According to latest Debt Policy Statement 2014-15, public debt to GDP ratio recorded a decline of 60 basis points and stood at 63 percent at the end of 2013-14 compared with 63.6 percent at the end of last fiscal year. This improvement in public debt to GDP ratio was mainly contributed by reduced fiscal deficit and appreciation of Pak Rupee against US Dollar.

Pakistan’s fiscal balance was significantly improved in 2013-14 as compared with last fiscal year. The actual fiscal deficit of 5.5 percent was not only lower than 8.2 percent last year but also lower than its budgeted target of 6.5 percent. This improvement in fiscal deficit has slowed down the pace of public debt accumulation. Apart from this reduction in fiscal deficit, another positive development was shift in financing mix of fiscal deficit i.e. around 37 percent of fiscal deficit was financed from external sources, which not only reduced the pressure on the banking system, but also left space for commercial banks to finance the private sector.

Meanwhile, according to Fiscal Policy Statement, Pakistan’s economic growth over the past many years has faced number of challenges mainly emanating from unstable security situation and crippling energy crisis. Besides, a number of deep structural problems that have persisted for decades are also responsible including weak financial position rooted in low tax revenues, limited exports growth, insufficient investment in human capital development, weak infrastructure and low economic activities.

External shocks such as volatile commodity prices have also adversely affected the economic performance. However, after a period of slack growth during last few years, GDP posted 4.1 percent growth during 2013-14 against 3.7 percent last year mainly owing to recovery in industrial sector and moderate growths witnessed in services and agriculture sectors.

The FBR tax to GDP ratio in 2013-14 improved to 8.9 percent from 8.7 percent in 2012-13 on the back of improved tax collection.

Fiscal deficit was recorded at 1.2 percent of the GDP during July-September 2014 against the budget target of 4.9 percent set for 2014-15. This was mainly driven by increased mark-up payments during July-September, 2014.