Debt Policy Statement released : Formulation of holistic debt management strategy stressed


ISLAMABAD: There is a need to formulate and adopt a holistic debt management strategy, a critical prerequisite of which is the centralization of the debt management operations, i.e. decision-making and implementation, suggests the annual Debt Policy Statement released on Thursday. .
The statement prepared by Debt Coordination Office Ministry of Finance observed that soundness of Pakistan’s debt position, as given by various sustainability ratios, remained higher than the internationally accepted thresholds. Total Public debt levels around 3.5 times and debt servicing below 30 percent of government revenue are generally believed to be within the bounds of sustainability. Public debt stock as on June 30, 2013 reached at Rs.14,366 billion representing an increase of Rs.1,699 billion or 13 percent higher with that of last fiscal year.
This built-up in public debt was mainly attributed to increase in domestic debt by Rs.1,880 billion, whereas, external debt witnessed a decline of Rs.181 billion. With external source of funding shrinking over the past few years, it was the hefty repayments against IMF loans and translation gain on account of appreciation of US Dollar against Japanese Yen which led to fall in the external debt during 2012-13. Although, in dollar terms, external public debt decreased by around US$ 4.6 billion, however 5.4 percent depreciation of Pak Rupee against US Dollar narrowed this effect in rupee term. Revenue balance is the total revenues less current expenditure. Zero revenue balance means borrowings are only utilized towards financing the development needs of the country. Revenue deficit stood at Rs.649 billion or 2.8 percent of GDP in 2012-13. This revenue shortfall over current expenditure is a reflection of non-availability of fiscal space for undertaking development spending which implies that the borrowed money was mostly spent to finance current expenditures and not the development needs.
Primary balance is the total revenues minus non-interest expenditure or fiscal deficit before interest payments. A negative primary balance essentially implies that the government is borrowing to pay interest on the debt stock which results in debt trap. Primary deficit stood at Rs.814 billion or 3.6 percent of GDP in 2012-13. Hence, there is strong need to improve revenue collection along with austerity measures and reforming those sectors which are causing drainage of resources to control current expenditure to facilitate debt management efforts. 
Domestic debt: With drying up of external financing, the onus of financing fell entirely on domestic sources – specifically the banking system. Government borrowing from domestic sources in 2012-13 was actually higher than the overall fiscal deficit as net external debt payments had to be paid from domestic sources owing to insufficient fresh external inflows. In effect, Pakistan’s domestic debt increased by Rs.1,880 billion and reached at the level of Rs.9,517 billion or 41.5 percent of GDP at end-June, 2013 compared with 38 percent at the end of last fiscal year. Government relied heavily on short term domestic borrowing which further increased its exposure to refinancing and interest rate risks.
Permanent debt: The amount of permanent debt in the government’s total domestic debt stood at Rs. 2,179 billion as at end-June 2013 registering an increase of Rs.482 billion compared with last fiscal year.
Floating debt: The share of floating debt in overall public debt and domestic debt stood at 36 percent and 55 percent respectively as at end-June 2013. During 2012-13, the floating debt grew by Rs.1,053 billion or 25 percent.
Unfunded debt: Mobilization through unfunded debt witnessed a sizeable growth as the government mopped-up Rs.349 billion during 2012-13 compared with 142 billion during the same period last year. In terms of composition, more than half of the incremental mobilization went into Special Savings Certificates and Accounts.
Domestic debt during July-Sep 2013: The domestic debt stood at Rs.10,158 billion at the end of the first quarter of 2013-14, representing an increase of Rs.641 billion over end-June, 2013.
External Debt and Liabilities: EDL stock was recorded at US$ 59.8 billion at end-June 2013 out of which external public debt amounted to US$ 48.7 billion. EDL stock witnessed a decline of US$ 5.7 billion which is a largest ever drop in a single year mainly due to around US$ 3 billion repayment to the IMF and translation gain of US$ 2.7 billion on account of appreciation of US Dollar against Japanese Yen.

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