Domestic Bonds

Public debt reaches 39,770 billion rupees in July-August


KARACHI: Public debt rose 2.8% in the first two months of the current fiscal year as the government borrowed heavily to fill the budget deficit, central bank data showed on Tuesday, but analysts put warns against an increase in the cost of debt as inflation accelerates.

The public debt stood at 39.770 billion rupees at the end of August. It stood at 38,697 billion rupees in June. Debt increased 11.52% year-on-year. It stood at 35.6 trillion rupees at the end of August 2020.

The country’s public debt continued to rise due to the financing of the budget deficit, the depreciation of the exchange rate, the rise in interest payments, the economic stimulus plan linked to the Covid and the social security programs.

The financing needs of the budget deficit are mainly met by the domestic market and within national sources, a large part of the financing is mobilized by long-term government securities, especially when there is no borrowing from the government. State Bank of Pakistan.

External debt came from multilateral and commercial creditors.

Domestic debt rose 0.26% to Rs 26,334 billion at the end of August. It included government securities, held primarily by commercial banks, and non-bank debt, such as national savings plans, including priced bonds.

A recent increase in the key rate will increase the cost of government debt.

“Considering the level of prices and the super-peak of raw materials, the rise in interest rates is inevitable. This will have a negative impact on debt service, ”said Muzammil Aslam, CEO of Tangent Capital.

Debt accumulated through long-term instruments fell slightly to 19,041 trillion rupees from 19,556 trillion rupees, while short-term debt fell from 6,680 trillion rupees to 7,238 trillion rupees. , highlighting the government’s growing dependence on short-term loans.

Long-term debt comes from Pakistani investment bonds, while short-term debt comes from market treasury bills.

“Rising interest rates will mean a higher cost of borrowing for the government. It is believed that a 1% increase in interest rates translates into additional debt service of around Rs 90-100 billion, ”said Tahir Abbas, head of research at Arif Habib Limited.

External debt increased 8% to 13.435 billion rupees as of August 31, 2021, due to a sharp decline in the national currency and a higher current account deficit. It also shows an increase in loans from multilateral, bilateral and commercial sources, and from international capital markets such as Eurobonds.

The government, in its annual debt review and public debt bulletin for fiscal year 2021, said risk indicators remained within declared benchmarks in fiscal year 2020-2021. However, few annual targets set last year for debt risk indicators were slightly missed, mainly due to the higher than expected federal budget deficit, lower than expected sukuk issuance due to the unavailability of assets, the non-materialization of privatization proceeds, need to build up the cash-buffer in anticipation of future deadlines.

“Pakistan is benefiting from the G-20 Debt Service Suspension Initiative (DSSI) for a period of 20 months (May 2020 – December 2021), which will help to defer debt service to the tune of approximately $ 3.7 billion during this period, ”he added. .