Pakistan's debt & liabilities mount to 40.2 trillion, 104% of GDP

[Varun]

For the first time in 19 years, Pakistan’s debt and liabilities have dangerously exceeded the size of its economy and peaked to a record Rs40.2 trillion at the end of last fiscal year – an addition of a whopping Rs10.3 trillion in a single year.

The Rs40.2 trillion total debt and liabilities were equal to 104.3% of the Gross Domestic Product (GDP), reported the State Bank of Pakistan (SBP) on Friday.

It was for the first time since the year 2000 when Pakistan’s total debt and liabilities were higher than the size of its economy.

In 2000, the country’s total debt and liabilities were equal to 106% of the GDP.

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.

One of the reasons behind the steep spike in debt and liabilities was booking of some of the pending liabilities on the instructions of the International Monetary Fund.

Ironically, the dangerous threshold had been crossed during the first year of the government of Prime Minister Imran Khan who has long remained very critical of the Pakistan Peoples Party and the Pakistan Muslim League-Nawaz’s economic policies that led to massive piling up of the debt.

To a question raised by The Express Tribune in March this year, Prime Minister Imran said one of the benchmarks of his success would be reducing the total debt and liabilities from Rs30 trillion to Rs20 trillion. But exactly the opposite happened.

The external debt and liabilities of Pakistan mounted to $106.3 billion as of June 2019, according to the central bank.

In the last fiscal year, net $11.1 billion was added to the external debt and liabilities by the federal government, SBP and private sector.

Statistics released by the SBP showed that by the end of last fiscal year, the country’s total debt and liabilities soared to Rs40.2 trillion.

Within a span of just one year, there was an increase of Rs10.3 trillion, or 34.6%, in the overall debt and liabilities.

The Pakistan Tehreek-e-Insaf (PTI) government had promised to revive loss-making enterprises, but it was struggling to control these losses.

By the end of last fiscal year, total losses of PSEs surged to Rs1.62 trillion, a net addition of Rs323 billion or 25% in the past one year.

The only thing that the PTI government had done was the incorporation of Pakistan Sarmaya Company. It had also become dormant.

Pakistan’s total debt and liabilities were now equal to 104.3% of its GDP, which was a quite high ratio and considered unsustainable for the country.

Of the Rs40.2 trillion, the gross public debt, which was the direct responsibility of the government, stood at Rs28.6 trillion as of the end of June.

The gross public debt was now equal to 74.4% of GDP, far higher than the 60% statutory limit set in the Fiscal Responsibility and Debt Limitation Act of 2005.

There was an increase of Rs3.7 trillion in the gross public debt in one year, which was higher than the overall budget deficit recorded during the period. One of the key reasons behind the higher debt was the increase in interest rate and depreciation of the rupee in the last fiscal year.

Rupee one depreciation added Rs106 billion to the public debt. Similarly, a 1% increase in interest rate increased the cost of debt servicing by roughly Rs180 billion. This ultimately increased borrowing requirements for the finance ministry.

Since December 2017, the central bank had let the currency weaken by 50% and had jacked up the interest rate by 7.50%.

Excluding the liabilities, the country’s total debt swelled to Rs37.75 trillion, up Rs9.3 trillion or 18% in one year.

The government’s domestic debt surged to Rs20.7 trillion with addition of Rs4.3 trillion in the last fiscal year. Its external debt increased to a record Rs11 trillion.

Total external debt and liabilities surged to Rs14.9 trillion on the back of currency depreciation and new borrowings. In dollar terms, Pakistan’s external debt and liabilities stood at $106.3 billion. This was mainly because of Chinese, Saudi and United Arab Emirates loans that Pakistan secured for balance of payments support.

The debt taken by Pakistan from the IMF increased in rupee terms by Rs180 billion to Rs921 billion due to steep currency devaluation. This was despite the fact that Pakistan retired some IMF debt in the last fiscal year.

Total liabilities, which were indirectly the responsibility of the finance ministry, increased to Rs2.1 trillion. There was an increase of 71% in the liabilities. Domestic liabilities dropped from Rs819 billion to Rs756 billion. But external liabilities increased from Rs622 billion to Rs1.7 trillion in one year, due to loans taken from friendly countries. There was 175% increase in external liabilities in one year.

The interest payments on debt and liabilities also skyrocketed to Rs2.2 trillion in the last fiscal year. The domestic interest payments on debt stood at Rs1.75 trillion –an increase of Rs427 billion or 32%. The external debt interest payments were Rs377 billion –a surge of Rs131 billion or 53%.

https://tribune.com.pk/story/2040895/1-debt-liabilities-mount-rs40-2-trillion/

Task cut out for Imran Khan and his team here.

 

[Syed1]

Should focus on your own economy for a change. Highest unemployment in 45 years. Negative double digit sales in auto industry and thousands of lay offs.

 

[Icon]

Many countries have a higher debt than their GDP. Nothing new.

 

[Slog]

Pak economy has many problems but Debt to GDP isn’t one of them

 

[jusarrived]

Should focus on your own economy for a change. Highest unemployment in 45 years. Negative double digit sales in auto industry and thousands of lay offs.

India will go through this phase for a year or two , mainly cos of rest of the world struggling. I won’t be surprised if we are still the fastest growing economy at 5-6 % .if Auto is struggling, IT seems to be picking up again . Amazon opened its largest office outside US this week in Hyderabad, Goldmansachs did the same in Bangalore this month . If the growth does slump ,there will be further job cuts and things may look worse , but it’s the weaker economies like Pakistan which can break if we go into a recession .

 

[Ram Shekhar]

Should focus on your own economy for a change. Highest unemployment in 45 years. Negative double digit sales in auto industry and thousands of lay offs.

No use screaming at a deaf man. Indian economy is bleeding but the bhakats are too blind to see that. They live in their own lala land. At least Pakistani posters here acknowledge the issue instead of beating drums shamelessly in Indian forums.

 

[Ram Shekhar]

Pak economy has many problems but Debt to GDP isn’t one of them

I ask you not to waste your energy to try and explain economics to laymen. Let them have their 2 best minutes of the day.

 

[jusarrived]

Pak economy has many problems but Debt to GDP isn’t one of them

It’s not a big problem if your on a high growth

 

[cricketjoshila]

Pak economy has many problems but Debt to GDP isn’t one of them

It isnt. As long as pakistan can service that debt.

 

[Itachi]

Pak economy has many problems but Debt to GDP isn’t one of them

Depends on the type of debt.

 

[Pete Rose]

When you depreciate the currency the nominal size of the debt increases. The only thing what should matter to Pakistan is sustainability. Year 2 month 1: exports up by 11% imports down by 25% and CAD down by 75%. For perspective, our exports declined in 2014, 2015, 2016 and with decent growth in 2017

In between there will be plenty of alarmist articles written by folks whose livelihood is threatened without government handouts.

At the same time, it is important for our friends across the border to look at this and keep underestimating things on the military front.

 

[Pete Rose]

It’s not a big problem if your on a high growth

Depends on quality of growth: whether consumption driver or export led.

 

[Pete Rose]

It isnt. As long as pakistan can service that debt.

As the economy stands, servicing debt sustainably is about 5 to 7 years away, because bleed forex on current growth model. As the economy becomes export driven, barring external shocks or war, we will see sustainability slowly. In between there be lots of rolling over short term or impending debt for long term debt.

 

[rhony]

Depends on quality of growth: whether consumption driver or export led.

Saw in the news that exports have been cut down. World is moving towards high value exports with bigger margins. Not sure what's Pak's focus on that.

The bigger problem is the currency fluctuation I think. Interest rates are going down everywhere because of the 8mpending recession and dollar value will go down. If Pak's rupee stands devalued further against a devalued dollar, the future looks bleak when the economies rise towards growth again in a few quarters. With exports stagnant or even falling, the way you can service the debt and spend for social causes would have to be by printing more which further devalues the rupee. The bonds they sell will come at a higher cost with higher interest rates. The only solution to these is to focus on high value exports.

 

[Hamza_]

Imran Khan at his best.

 

[from_da_lost_dim3nsion]

Many countries have a higher debt than their GDP. Nothing new.

This . US about to hit 90% if the proposed payroll tax cut goes in affect .

 

[rhony]

This . US about to hit 90% if the proposed payroll tax cut goes in affect .

China debt is 300 percent of gdp. When there is free cash in the market with dirt cheap interest rates, who wouldn't go for debt? The monetory policies to ease the credit flow during recession are going to push countries and corporates into more debt. Currency fluctuations are a bigger issue for Pak than debt to GDP ratio I think

https://www.reuters.com/article/us-...-gdp-now-15-of-global-total-iif-idUSKCN1UD0KD

 

[Pete Rose]

Saw in the news that exports have been cut down. World is moving towards high value exports with bigger margins. Not sure what's Pak's focus on that.

The bigger problem is the currency fluctuation I think. Interest rates are going down everywhere because of the 8mpending recession and dollar value will go down. If Pak's rupee stands devalued further against a devalued dollar, the future looks bleak when the economies rise towards growth again in a few quarters. With exports stagnant or even falling, the way you can service the debt and spend for social causes would have to be by printing more which further devalues the rupee. The bonds they sell will come at a higher cost with higher interest rates. The only solution to these is to focus on high value exports.

Currency depreciate took place over the last 6 months. Export volume increased pretty much every month since then. The first month of the new fiscal has shown 10% growth in exports in value terms after 5 months and the highest after almost 2 years, while imports have declined 25%.

All of this sky is falling is non-sense. We need stability to continue along this path and we have to accept a few setbacks along the way.

 

[cricketjoshila]

As the economy stands, servicing debt sustainably is about 5 to 7 years away, because bleed forex on current growth model. As the economy becomes export driven, barring external shocks or war, we will see sustainability slowly. In between there be lots of rolling over short term or impending debt for long term debt.

Thing is that as and when your exports increase, your forex reserves will go high, that will mean that PKR will go up againist the dollar and exports will become expensive.Right now Pkr has weakened so much that pak textile exports are cheaper than BD, as 1BDT is almost 2PKR now.

I read that imports are down. Now that may mean that economy is stagnating and raw material import may be down.

Also remember that pakistan is on deferred oil payments deal with Saudi and Uae, so that payment will reflect later.

Problem with pakistan is that most of its exports are basic goods like textiles etc.

I cant fathom why pakistan hasnot developed large scale industries for automobile,pharnaceuticals,IT etc. Esp Automobile.

 

[Icon]

Thing is that as and when your exports increase, your forex reserves will go high, that will mean that PKR will go up againist the dollar and exports will become expensive.Right now Pkr has weakened so much that pak textile exports are cheaper than BD, as 1BDT is almost 2PKR now.

I read that imports are down. Now that may mean that economy is stagnating and raw material import may be down.

Also remember that pakistan is on deferred oil payments deal with Saudi and Uae, so that payment will reflect later.

Problem with pakistan is that most of its exports are basic goods like textiles etc.

I cant fathom why pakistan hasnot developed large scale industries for automobile,pharnaceuticals,IT etc. Esp Automobile.

China's keeps its currency value too even though they have a good economy in order to keep the exports cheap. So the same can be done here.

 

[Pete Rose]

Thing is that as and when your exports increase, your forex reserves will go high, that will mean that PKR will go up againist the dollar and exports will become expensive.Right now Pkr has weakened so much that pak textile exports are cheaper than BD, as 1BDT is almost 2PKR now.

I read that imports are down. Now that may mean that economy is stagnating and raw material import may be down.

Also remember that pakistan is on deferred oil payments deal with Saudi and Uae, so that payment will reflect later.

Problem with pakistan is that most of its exports are basic goods like textiles etc.

I cant fathom why pakistan hasnot developed large scale industries for automobile,pharnaceuticals,IT etc. Esp Automobile.

As I mentioned to another poster. Exports are down as per our last fiscal year. but the history there is that exports were down in every year from 2013 till 2017. Exports started to pick up in 2017 but the imports went up double digit in 2017 onwards blowing a massive hole in CAD and Forex reserves. The policy of the previous government was to keep the locals happy and delay payment of bills to following governments.
Moving on to the situation now, in the first months of the new fiscal year exports are up 11% while and imports are down 25% and the deficit has gone down by 75%. These are in month figures, so lets see how sustainable it is. I should add that in volume terms exports have grown every month since depreciation, but July is the first month we see value growth. The growth is evenly distributed is evenly distributed between food (rice) and value added garments and engineering. its a long haul process, lets see how sustainable this growth is.

 

[rhony]

China's keeps its currency value too even though they have a good economy in order to keep the exports cheap. So the same can be done here.

Can't use the same logic as China exports massive amounts compared to Pak. If your economy has trade deficit, that is, you import more than you export, the lower currency value makes it expensive to buy. The reason why Pak reduced the imports.

 

[Napa]

When you depreciate the currency the nominal size of the debt increases. The only thing what should matter to Pakistan is sustainability. Year 2 month 1: exports up by 11% imports down by 25% and CAD down by 75%. For perspective, our exports declined in 2014, 2015, 2016 and with decent growth in 2017

In between there will be plenty of alarmist articles written by folks whose livelihood is threatened without government handouts.

At the same time, it is important for our friends across the border to look at this and keep underestimating things on the military front.

You are correct that the debt is inflated when the currency deflates, only for foreign currency (mainly dollar) denominated debt. However, this inflation also does imply that Pakistani firms who have revenues in PKR but have to make payments in USD will be squeezed.

Currency depreciate took place over the last 6 months. Export volume increased pretty much every month since then. The first month of the new fiscal has shown 10% growth in exports in value terms after 5 months and the highest after almost 2 years, while imports have declined 25%.

All of this sky is falling is non-sense. We need stability to continue along this path and we have to accept a few setbacks along the way.

It is important to look at the composition of exports. The drastic devaluation has apparently led to a growth of food exports. It also means there is less food to go around for the poor.

Currency depreciation can buy you only a limited amount of textiles and food exports. The need is for high value (high tech) exports in which Pakistan is nowhere. The more IK talks about Kashmir and going to war, the less likely there will be any FDI by Western multinationals.

Over the last 10 years Pakistan has appeared 5 times on FATF lists (usually "high risk and non-cooperative"). If you look at the other countries appearing with such frequency, they do not get FDI either and have not developed modern industries.

https://en.wikipedia.org/wiki/FATF_blacklist

 

[Pete Rose]

You are correct that the debt is inflated when the currency deflates, only for foreign currency (mainly dollar) denominated debt. However, this inflation also does imply that Pakistani firms who have revenues in PKR but have to make payments in USD will be squeezed.



It is important to look at the composition of exports. The drastic devaluation has apparently led to a growth of food exports. It also means there is less food to go around for the poor.

Currency depreciation can buy you only a limited amount of textiles and food exports. The need is for high value (high tech) exports in which Pakistan is nowhere. The more IK talks about Kashmir and going to war, the less likely there will be any FDI by Western multinationals.

Over the last 10 years Pakistan has appeared 5 times on FATF lists (usually "high risk and non-cooperative"). If you look at the other countries appearing with such frequency, they do not get FDI either and have not developed modern industries.

https://en.wikipedia.org/wiki/FATF_blacklist

Mostly fair points. IK has been pretty clear in the local press that we can’t afford a war that we will start. As for exports, you are really right that all countries want exports on value added goods. If I look at this one month of growth it’s split equally between food (rice particularly) value added goods (garments) and industrial (surgical and pharma). It’s just one month and we have a long way to go. We can’t afford war or blacklisting by the FATF. It’s a painful path to reform, but there’s no other way around it. We will have to continue to rebuild the economy while managing foreign relations without resorting to irresponsible behavior. So far so good, but a long way to go for a country that has lived beyond its means and done brinksmanship for too long.

 

[Napa]

Mostly fair points. IK has been pretty clear in the local press that we can’t afford a war that we will start. As for exports, you are really right that all countries want exports on value added goods. If I look at this one month of growth it’s split equally between food (rice particularly) value added goods (garments) and industrial (surgical and pharma). It’s just one month and we have a long way to go. We can’t afford war or blacklisting by the FATF. It’s a painful path to reform, but there’s no other way around it. We will have to continue to rebuild the economy while managing foreign relations without resorting to irresponsible behavior. So far so good, but a long way to go for a country that has lived beyond its means and done brinksmanship for too long.

I also agree with most of what you say and I wish you well. If your country has more rational people like you it will do well.

I know we disagree on Kashmir, and unfortunately there are no easy solutions. It is the poor people who are always the worst sufferers, not the rich.

 

[Pete Rose]

I know we disagree on Kashmir, and unfortunately there are no easy solutions. It is the poor people who are always the worst sufferers, not the rich.

Thanks. FWIW, I don’t think we disagree per se on Kashmir. I am not sure, what the moral answer is here. I really don’t. Ppl much more knowledgeable than me can argue about the history and why it should be one way or the other. My point continues to be, it’s not a battle we can win right now. At the same time I have views on what moves like this mean for India in the long term. Perhaps that is where we might have disagreements on.

 

[ReverseHit]

The number by itself doesn't really matter.

What matters is 1) the ability to stay current on repaying that debt, which partially depends on 2) what the debt was used for.

 

[Napa]

Thanks. FWIW, I don’t think we disagree per se on Kashmir. I am not sure, what the moral answer is here. I really don’t. Ppl much more knowledgeable than me can argue about the history and why it should be one way or the other. My point continues to be, it’s not a battle we can win right now. At the same time I have views on what moves like this mean for India in the long term. Perhaps that is where we might have disagreements on.

I read the following article and remembered our conversation. I agree with some of the author's sentiments about the way forward for Pakistan.

https://dailytimes.com.pk/449748/is-america-and-india-friends-to-handcuff-pakistan/

On paper, India is much more powerful than Pakistan when it comes to conventional weaponry, or non-nuclear weaponry. So, as rational actors, let’s accept for a moment that war with India is not a solution to anything, but a key to further destruction.

What do we do then? How can we make India pay for its deeds? What kind of Pakistan can truly bargain a favourable outcome for Kashmiris? For the longest part of our national history, threat from India has kept us overly-concentrated on our security more than anything else. That’s exactly what India desired as well, and we kept falling in the trap, kept neglecting our ‘real’ development, kept India at peace.

We failed to recognize that the genuine source of discomfort for India is not a militarily strong Pakistan, but a Pakistan that is economically strong; a Pakistan that is a healthy democracy and has rule of law; a Pakistan that has high literacy rate; a Pakistan that is free from sectarianism; a Pakistan that has good relations with its neighbours; a Pakistan that invests in its health and education; a Pakistan that invests in research and development; a Pakistan that has functional institutions; a Pakistan that has inter-provincial harmony; a Pakistan where Balochistan is thriving; a Pakistan where FATA is safe; a Pakistan where minorities are respected; a Pakistan that has mature and strong bilateral relationship with super and major powers of the world; a Pakistan that is truly a healthy society and economy.

When we start playing India militarily, we move to their home ground. They will always have more to spend on military, and we will always keep irrationally chasing them without realizing that they are strong because they have more. How can we have more? By investing in ourselves.

The challenge for Pakistan is to play the world powers with ultimate prudence, and for that, it will have to employ its finest minds and utmost potential. Thus, we need to make Pakistan internally strong, and everything will work if not in wrong then at least somewhat in right direction

The fact of the matter is to understand they will appreciate if we believe that our glory lies in beating India militarily. False! Our glory lies only in making Pakistan stronger from inside. Only an economically sophisticated Pakistan can have a stronger bargaining position vis-a-vis India. There is no other way.

If we actually want to resolve Kashmir, and not merely shed tears for it, if we actually desire to have parity with India, if we truly wish to have a Pakistan that uses to its fullest the potential that it has, we will have to improve our socio-economic indicators which are currently competing with Subsaharan African nations. We will have to rise above Gabon and Burundi.

 

[Itachi]

I read the following article and remembered our conversation. I agree with some of the author's sentiments about the way forward for Pakistan.

https://dailytimes.com.pk/449748/is-america-and-india-friends-to-handcuff-pakistan/

That seems right. A economically strong Pakistan is greater threat.

 

[Napa]

That seems right. A economically strong Pakistan is greater threat.

More an opportunity than a threat for India I think. I don't think most Indians wish Pakistan ill. What they really want is for Pakistan (or rather the Pakistani Army and ISI) stop sending arms and terrorists across the border. If Pakistan is economically strong it means it would have chosen peace, which is what Indians want.

Pakistan has two choices, there is no way around it.

1) Continue on the present course and keep supporting terrorism. No FDI and no growth of modern industries. Pakistani Army maintains its stranglehold on the country. Indians take small losses every year in terms of lives and money. There is however no delusional "death by a million cuts". Biggest losers are the Pakistani civilians especially the poorer section.

2) Choose economic development by crushing the jihadi outfits and improving domestic security, while letting elected civilian governments run the economy. Indians gain, but Pakistanis gain a lot more.

Unfortunately from IK's rhetoric (pre and post 370 abrogation) and the various insults he has hurled at Modi over the last year ("small man", "Hitler" etc.), option 2 is not going to happen for at least a decade if ever.

 

[rhony]

That seems right. A economically strong Pakistan is greater threat.

That will start with ignoring Kashmir, thereby spending less on army and focussing on basics. If they do that, they will have internal security issues with jihadis which was the case in the FATA region. It's a decades old problem of oneupmanship and trying to gain a foothold by army, ISI, jihadis and civilian government into what actually is a quagmire. An year ago Imran seemed to have the right ideas with a status quo with Army and other institutions but India saw an opportunity in that. India wants Pakistan where it has been for the past 30 years.