Web Desk
ISLAMABAD: Risks of Pakistan’s public debt rising beyond sustainable levels have increased adverse changes in the peg exchange rate, and also pushed borrowing rates above sustainable levels for the next three years.
According to a report issued by the Ministry of Finance, the sustainable level of debt for countries like Pakistan is 70 percent of GDP, and if gross financing needs increase beyond 15 percent of GDP, they become unsustainable, and Pakistan’s debts have crossed both these limits.
According to the Debt Assessment Sustainability Analysis report, Pakistan’s debt levels are already above sustainable levels, with high risks of default, and any adverse change would push Pakistan’s debt above sustainable levels continuously until 2026.
The risk assessment report shows that any adverse change in real GDP growth, primary balance, real interest rate, and exchange rate, etc. would increase debt beyond 70 percent and make it unsustainable.
According to the report, interest rates alone have increased debt servicing costs by Rs 1.5 trillion during the current fiscal year, making it unsustainable, enough to consume 70 percent of FBR’s projected revenue.
Any adverse change would keep gross financing needs above 15 percent for the next three years, while without any adverse change the rate is estimated at 18.9 to 19.2 percent for the next three years.
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During the last financial year, the debt reached 78% of GDP due to the primary deficit and depreciation of the rupee. External debt ratio also increased from 34.1 percent to 36.9 percent.
Under the Fiscal Policy and Debt Limitation Act, the government is legally bound to reduce debt to 55.2 percent of GDP by 2026, but without any adverse changes, debt is likely to remain at 63 percent of GDP.
