Pakistan Debt liabilities
Fiscal sustainability is an issue of worldwide concern, but it rings particularly true in the case of
Pakistan’s present debt trajectory. A shrinking fiscal space and an over-reliance on external debt
financing has put immense pressure on the Pakistani economy and state; and as the urgency of
the problem grows, so too does the degree of its politicization.
“I sincerely believe that banking establishments are more dangerous than standing armies,
and that the principle of spending money to be paid by posterity, under the name of
funding, is but swindling futurity on a large scale.’ (Thomas Jefferson).
For a variety of reasons, ranging from a desire to accelerate capital spending to a policy of
economic stabilization, governments may choose to raise some of their resources
by borrowing rather than taxation. All economies in the world, from the most advanced industrial
economies, like the United States and Japan, to those endowed with vast natural resources, like
Saudi Arabia and Venezuela, borrow money. There is nothing wrong with a country floating
bonds, financing infrastructure projects through long-term debt instruments, and using capital
markets, both domestic and external, to meet its financing needs. However, debt involves a factor
of risk, which is compensated for by means of interest, in that manner that would reflect the risk
profile of the borrower. Whenever debt is used to fund short-term consumption or non-capital
forming activities, then debt often poses a significant longer-term risk for both the creditor and
debtor countries. Over time, the accumulation of unpaid debts which fail to translate into capital
formation create a problem of sustainability.
Pakistan’s Debt:
Pakistan faces the daunting task of reducing the troubles of a massively increasing national debt,
waste of national resources, a rapidly growing population, rising unemployment, and inadequate
health and education facilities.
As per the data gathered from World Bank, UNICEF, Economic Survey, International Diabetes
Federation, UNAID and SBP, Pakistan ranked first among the top 10 countries with the highest
external debt of $127 billion, out of the 73 states eligible for the World Bank's Debt Service
Suspension Initiative. The list of the top 10 countries include:
Nigeria, Bangladesh, Angola, Kenya, Mongolia, Uzbekistan, Ghana, Ethiopia, and Zambia.
These are countries next to Pakistan on the list.
Economic analysts, central bankers and government policymakers rely on various
indicators to measure risk exposure and debt sustainability. Examples of these indicators
are:
Total government domestic debt as a percentage of Gross Domestic Product (GDP),
which essentially shows how much a government owes to domestic creditors as a
percentage of the annual output of the economy;
Total government external debt as a percentage of GDP, which essentially shows how
much a government owes to international creditors as a percentage of the annual output
of the economy;
Time to maturity of news loans, which shows how soon the loans must be paid back or
refinanced; and
Whether the loans are on fixed or floating interest rates.
From 2008 to 2024, Pakistan’s position worsened across all these indicators, and little to no
effort was made by successive governments to sustainably deal with the country's addiction
to loans and bailouts.
From 2008-2013:
When the PPP came to power, Pakistan was facing economic, security and political crises all at
the same time. From 2008 to 2013, the total government debt increased by over 135pc, going
from Rs6,435 billion to Rs15,096 billion. As a percentage of the GDP, the total government debt
increased by 4.4 percentage points, going from 62.8pc to 67.2pc during this period.
The lack of liquidity in the international bond market meant that the PPP relied on domestic
borrowing to meet its financing needs. This meant that the total government external debt
increased by only 22pc between 2008 to 2013, going from $42.8 billion to $52.4 billion
This led the total government domestic debt to increase from Rs3,412 billion in 2008 to Rs9,833
billion in 2013, a jump of 188pc. The total government domestic debt went from 33.3pc of the
GDP in 2008 to 43.8pc in 2013, an increase of 10.5 percentage points.
In its 2012-13 annual report on the state of the economy, the SBP stated that “Pakistan’s public
debt continued to be a major risk to the country’s macroeconomic stability” and that “concerns
about debt sustainability deepened with the growing burden of debt servicing”
By 2013, domestic debt represented two-thirds of Pakistan’s total government debt, which
entailed “significant risks to Pakistan’s fiscal and debt outlook”, according to the SBP.
The PPP had over-relied on short-term domestic debt to meet its financing needs, and the SBP
noted that “re-pricing of this debt at higher interest rates” will add to the country’s debt servicing
burden.
From 2013 to 2018:
But while growth returned, and some issues were solved, the PML-N also failed to effectively
deal with Pakistan’s debt crisis.
Two things, however, worked greatly in its favour later: by 2015, international oil prices had
fallen dramatically, going below $50 a barrel. Secondly, at that time, the world was awash in
liquidity as record-low interest rates and quantitative easing (essentially the printing of money)
in the US, Europe and Japan led to a reach for yield in the international bond market. This meant
that countries like Pakistan could borrow money at low interest rates.
From 2013 to 2018, the total government debt had increased by another 79pc to Rs26,968
billion.The total debt as a percentage of the GDP in this period increased by 11.2 percentage
points, going from 67.2pc of the GDP to 78.4pc.
A significant contributor to this increased reliance on debt was the PML-N’s focus on large
infrastructure projects, including many sorely needed in the power sector.
In addition, the massive rollout of the China-Pakistan Economic Corridor, which led to further
inflows of external loans, led the total government external debt to increase by 46pc to $75.3
billion by 2018.
The PML-N’s appetite for debt was not satiated by foreign debt alone, and the government
continued to rely on domestic debt as well, with the total government domestic debt increasing
by 78pc to Rs17,483 billion by 2018.
From 2018~2024:
The government of Imran Khan had added Rs18.1 trillion to the public debt during its 44-month
rule, a threshold that PDM administration exceeded in just 15 months.
From September 1, 2018 to the end of March 2022, the PTI government on average added
Rs14.5 billion per day to the public debt, which was more than double the PML-N period’s
average increase of Rs5.6 billion a day.
Gross public debt jumped from Rs44.4 trillion in March 2022 to Rs62.9 trillion by the end of
fiscal year 2022-23, according to the monthly debt bulletin of the State Bank of Pakistan (SBP).
The debt in a short period of mere 15 months increased at a pace of 41.7% amid absence of any
credible strategy to contain it.
At present, country’s total debt and liabilities — including domestic and external debt — to be
at Rs77.66 trillion, or $271.2 billion. The report said that Pakistan’s external debt was primarily
borrowed from a range of creditors: Paris club (6.3 per cent), multilaterals (30.1pc), other
bilateral (19.1pc), commercial banks and T-bills (4.9pc), Eurobonds (6.3pc), the International
Monetary Fund (5.7pc), banks (5.1pc) and private sector liabilities (12.7pc).
