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Pakistan’s Public Debt
Selected Issues
Sakib Sherani
CEO Macro Economic Insights (Pvt) Ltd.
Former Principal Economic Adviser, Ministry of Finance
PRIME Nat’l Debt Conference │ December 2015
Macro Economic INSIGHTS
Jun-13R Jun-14R Jun-15 Q1 FY16
I. Government Domestic Debt 9,520.4 10,906.5 12,192.5 12,714.6
II. Government External Debt 4,336.5 4,786.3 4,770.0 4,952.7
III. Debt from IMF 434.8 298.4 417.6 475.3
IV. External Liabilities1307.8 324.2 377.6 383.9
V. Private Sector External Debt 465.5 497.6 543.2 569.8
VI. PSEs External Debt 183.2 216.1 245.9 278.6
VII. PSEs Domestic Debt 312.2 366.2 458.7 476.1
VIII. Commodity Operations2469.7 492.4 564.5 569.8
IX. Intercompany External Debt from Direct Investor abroad 308.2 335.9 272.4 285.4
A. Total Debt and Liabilities (sum I to IX) 16,338.2 18,223.8 19,842.5 20,706.2
B. Total Public Debt (sum I to IV) 14,599.5 16,315.5 17,757.7 18,526.5
C. Total Public Debt (sum I to III) MOF Definition314,291.7 15,991.3 17,380.2 18,142.6
D. Total External Debt & Liabilities (sum II to VI+IX) 6,036.0 6,458.6 6,626.8 6,945.7
As percent of GDP
Total Debt and Liabilities 73.0 72.7 72.5 67.5
Total Public Debt 65.2 65.1 64.8 60.4
Total Public Debt-MOF Definition 63.9 63.8 63.5 59.2
Total External Debt & Liabilities 27.0 25.8 24.2 22.6PSEs Debt & Liabilities 4.3 4.3 4.6 4.3
Rs billion
Source: SBP
Pakistan’s debt and liabilities - summary
Public debt
Source: SBP
12.3
5.6
9.6
5.1
Public debt
Change:
Rs billion, end-June 2008 2014 AbsoluteMultiple
(x)
Total public indebtedness 6,422 17,385 10,963 2.7
External 2,937 5,619 2,682 1.9
Domestic 3,485 11,766 8,281 3.4
Source: SBP
Public debt indicators
Definitional Issues
• FRDL : Sum of the total outstanding borrowings of government
• MOF : The portion of total debt which has a direct charge on government revenues, as well as debt obtained from IMF
• Includes: Govt. domestic + external debt + IMF
• Excludes: External Fx liabilities, circular debt, other contingent liabilities (guarantees, tax refunds, PSE losses/restructuring costs etc.)
Public debt under different definitions
Source: SBP; Sakib Sherani
Rs bn % GDP % Revenue
MOF 17,380 63.5% 442%
SBP 17,758 64.8% 452%
Expanded: 20,552 75.1% 523%
PSEs 755 2.8% 19.2%
Guarantees 636 2.3% 16.2%
Commodity ops 570 2.1% 14.5%
External liabilities 384 1.4% 9.8%
Circular debt 300 1.1% 7.6%
Tax refunds 150 0.5% 3.8%
Definitional Issues
• Risk-management versus accounting approach
– Debt-carrying capacity of govt has to be measured
• All liabilities (on- or off-balance sheet versus revenue)
• Charge on current vs future resources
• Servicing of many loans on public sector balance sheet indirectly from budgetary resources (e.g. NHA)
• External debt: all debt – govt, public or private –has to be serviced from a “country” pool of finite Fx resources
Definitional Issues
Advantages of the expanded approach:
•Correctly measures, accounts and accrues for all liabilities
– Greater granularity for policy-makers
•Increases fiscal transparency and accountability
– New budget line of ‘Contingencies’
•Highlights mis-match between ultimate sources of payment (tax revenue, exports) and liabilities
Definitional Issues
• CPEC liabilities:
– US$ 11bn for highways, approx. 75-80% of rest debt
– Terms unclear• Who will contract debt
• Amount
• Repayment terms
• Who will ultimately pay
– Govt considering ‘special treatment’ (Non-Plan)
Further Issues
• Growing burden of debt-servicing:
– Servicing of public debt accounts for 52% of net federal revenue after transfers
• Government’s pre-emption of bank credit:
– In FY15, Govt + PSEs picked up 92.4% of total bank credit
• Growth of debt components higher than underlying repayment sources …
Tax Non-Reform
If Tax-GDP ratio of 12% achieved in FY05:
Public debt 2014 (projected) = Rs 13,056 bn
Public debt 2014 (Actual) = Rs 16,321 bn
Difference = Rs 3,265 bn
As % GDP:
51.4% versus 64.3%Source: Author/Sakib Sherani
Conclusion
• Pakistan’s public debt has increased sharply since 2007-08
• While risk-profile has improved, dynamic still unfavourable
• Absence of robust economic reform (tax, exports, energy, FDI) to constrain prospects
Thank You