Pakistan’s State Debt: Pace of Accumulation Slows Down

Pakistan’s State debt and liabilities which has been accumulating over the years has significantly slowed down, according to a report in The Express Tribune, citing the country’s central bank State Bank of Pakistan (SBP). The debt peaked to a record Rs44.8 trillion at the end of September 2020, an addition of Rs3.3 trillion in a year, but the pace of debt accumulation slowed down significantly, said the local paper on Thursday.

The increase was one of the slowest rates in debt accumulation during Pakistan Tehreek-e-Insaf’s (PTI) tenure.

The government led by Prime Minister Imran Khan, experts say, has been majorly focused on two-pronged tactic: prudent fiscal debt management and dollar-saved-dollar-earned mantra, as part of its overall strategy to overhaul the economy.

Still, taming inflation and creating jobs are also needed, said an expert.

“Pakistan’s projected rate of inflation (12%) is the highest in the region, and the country’s projected GDP growth (0.50%) is the lowest in the region”.

The South Asian country’s debt has reached the level where the bulk of its budget is dedicated to debt servicing.Its foreign debt stands at $113 billion as of June 30, 2020.

The increase in debt stock and debt servicing continue to pose a major challenge to the State’s exchequer.

Recently, the Khan-led government inducted a special advisor (a seasoned financial professional) to identify and help implement additional revenue streams for the State.

The country has been over decades heavily dependent on indirect taxes –collected on imports (including luxury items) and on sales tax on the consumer side –in the presence of a very narrow direct tax base and absence of agriculture tax –both are political hot potatoes and a sort of “no go” areas of economy considered sensitive by successive political governments.

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Sugar and wheat artificial shortages and scams over the years –and as recently as one this year, have been making headlines “but with no visible impact of course-correction”, says an observer.

“It therefore leaves a stubbornly honest Khan upset that to shake and stir the system for optically-cool tangible results remains a challenge”, says the observer. “Intangibles notwithstanding”, he says.

Total debt and liabilities also include the public sector enterprises’ (PSEs) debt, non-governmental external debt and inter-company external debt from direct investors abroad.