Debt, liabilities rise 27%: Rs 1730 billion in one year

[Naveed Yaseen]

Debt, liabilities rise 27pc
By Ghazanfar Ali
KARACHI: Pakistan’s total debt and liabilities rose a substantial 27 per cent to Rs8,151 billion in financial year 2008-09, reflecting the fact that imbalances in overall fiscal account as well as current account were still large, the State Bank said.

In its annual report on the state of Pakistan’s economy in 2008-09 released on Thursday, the State Bank said the growth in debt and liabilities showed lower availability of non-debt creating flows (grants), impact of built-up reserves flowing, increased inflows of multilateral assistances as well as increase in the rupee value of external debt due to adverse exchange rate movements.

In 2007-08, debt and liabilities had increased by 27.4pc, slightly higher than 2008-09.

Though the ratio of total debt to GDP slightly improved to 61 per cent in FY09 from 61.3 per cent in FY08, it was significantly higher than the low of 57.2 per cent recorded in FY07, the SBP said. Also, the ratio of debt servicing to total revenues, which reflected the government’s capacity to service the country’s debt, rose to 49.1 per cent in FY09 from 45.3pc in FY08.

The Fiscal Responsibility and Debt Limitation Act 2005 envisages a debt to GDP ratio of 60 per cent by FY13. The debt recorded a declining trend since FY01 with total debt to GDP ratio falling below 60 per cent in FY06, well before the target year of FY13.

However, it said substantial widening of twin deficits — fiscal and current accounts — in FY08 and continued imbalances during FY09 reversed the declining trend, taking the debt to GDP ratio above the 60pc threshold since FY08.

Separately, the central bank said domestic debt stood at Rs3.8 trillion at the end of June 2009, registering a growth of 18 per cent compared to 25.6 per cent rise in FY08. Domestic debt servicing increased by 29.8 per cent to Rs570.2 billion in FY09 compared to Rs440.3 billion in the previous year.

In the case of external debt, widening of twin deficits during the last couple of years led to a significant rise in debt and liabilities, which increased by $4.5 billion in FY08 alone. It said a sharp rise in trade deficit and fall in financial flows (portfolio and foreign direct investment) led to a loss of around 60pc of reserves in just 11 months. Pakistan had little option but to approach the IMF, which approved an assistance of $7.6bn in November last year. At the end of June 2009, servicing of external debt and liabilities ate up $4.69 billion.

http://www.thenews.com.pk/daily_detail.asp?id=205809