The government’s total debt increased by 29 percent between August 2022 and August 2023, reaching nearly Rs. 64 trillion, in large part due to months of the rupee’s value declining against the U.S. dollar, according to data issued by the State Bank of Pakistan (SBP).
The central bank’s figures showed the total debt had increased by Rs. 14.4 trillion over the 12-month period, going from Rs. 49.57 trillion at the end of August 2022 to Rs. 63.97 trillion at the end of August 2023. Within this figure, it said, domestic debt had risen by 23 percent from Rs. 32.15 trillion to Rs. 39.79 trillion, while external debt had increased by 39 percent from Rs. 17.42 trillion to Rs. 24.17 trillion in the same 12-month period.
Similarly, the Finance Ministry’s Annual Debt Review and Public Debt Bulletin FY2023 stated that total outstanding guarantees to public sector enterprises had increased from Rs. 2.9 trillion in fiscal year 2021-22 to Rs. 3.5 trillion in fiscal year 2022-23, or 0.7% of GDP. Guarantees issued for the oil and gas sector alone, it said, had increased from Rs. 52 billion in FY22 to Rs. 166 billion in FY23.
Overall, the ratio of foreign debt had increased from 36.9 percent in FY22 to 38.3 percent in FY23, while the ratio of domestic debt has declined from 63.1% to 61.7%. This suggests the accumulation of foreign debt has surpassed that of domestic debt, with experts stating this is largely due to the massive devaluation of the rupee against the U.S. dollar over the past year. In August 2022, one dollar was equal to roughly Rs. 218; a year later, the dollar peaked at Rs. 307, before the rupee gained some value due to an ongoing crackdown against informal banking networks and hoarders and speculators. The effects of this, per experts, should become visible with next month’s data.
The jump in overall domestic debt, meanwhile, has been described as concerning because it hampers the state’s ability to allocate funding for development and slows economic growth, as a greater chunk of available funding is used for debt servicing.
Earlier this week, an official of the Finance Ministry told the Senate Standing Committee on Finance that the country’s domestic debt was estimated to have risen by over Rs. 7 trillion since January because of the SBP’s policy rate hikes, as—generally—a 1 percent hike in interest rates equals Rs. 600 billion in additional debt. In January 2022, the SBP’s policy rate was fixed at 9.75 percent, and was spiked to 12.25 percent in April. The interest rate kept increasing over the past year, ostensibly to curtail rampant inflation, peaking at the prevailing 22 percent.
Also on Thursday, the SBP issued updated values of its foreign exchange reserves, showing that they had declined slightly by $21 million to $7.6 billion in the week ending Sept. 28. Overall, the country has $13.03 billion in foreign reserves, including the $7.6 billion held with the SBP and $5.41 billion held with commercial banks.