Govt debt to reach 60pc of GDP in 2010-11

By Muhammad Toori

KARACHI: The total government debt will reach 60 per cent of the gross domestic product (GDP) in 2010-11, Finance Ministry officials said here on Tuesday.
The total public debt, excluding IMF obligations, is expected to rise to around 55 per cent of GDP at market prices. However, the IMF obligations are estimated to increase the total debt to more than 60 per cent of GDP at market prices for 2010-11 which has implications on the Fiscal Responsibility and Debt Limitations Act.
The country's public debt both in rupee and foreign currency grew by almost 27 per cent to 7,605 billion rupees in 2008-09, from 6,005 billion rupees a year before, thus showing an increase of 1,600 billion rupees in just one year as against 1,300 billion rupees in the last five years.
"This is a horrifying sign with immense socio-economic implications for the country going forward," said Ashfaque Hassan Khan, former economic adviser, while talking to Business Day. According to the SBP's first quarterly report for the current fiscal year, the country has added almost 500 billion rupees to public debt, reaching as high as 8,100 billion rupees.
Ashfaque Hassan Khan explained: first, the exchange rate depreciation has emerged as a dominant source of the rise in public debt; and, second, the contribution of foreign currency debt has surpassed the rupee component of public debt for the first time in the history of Pakistan. Such a development makes the economy, budget and balance of payments, highly vulnerable to external shocks.
The government intends to establish a legal and institutional framework for debt management. In this regard a debt management committee has been formed to oversee the management of market risks embedded in the debt portfolio, and formulate a debt strategy based on medium-term fiscal framework. While explaining a possible risk and its implications, a ministry official said, "Severe impact on public sector development programme (PSDP) high-level borrowings from domestic and external sources will make it difficult to sustain debt in the medium-term."