The federal government debt has surged to a staggering Rs.64 trillion by the end of August 2023, reflecting an alarming increase of over 29% in just one year. This unsettling trend has raised concerns about fiscal sustainability and the adverse impacts of steep currency devaluation at a time when the World Bank has cautioned Pakistan about the growing risks of its macroeconomic framework.
The SBP reported on Thursday that the federal government’s debt has soared by Rs14.5 trillion, constituting a substantial 29.2% rise compared to the same period last year. This rapid escalation in debt is widely seen as unsustainable, yet corrective measures to curb this alarming trajectory have not been implemented.
The growing debt stock carries significant fiscal costs and exposes the country to debt vulnerabilities, as highlighted in the Pakistan Development Update report by the World Bank. The report also emphasised that persistent fiscal deficits and debt repayments have resulted in consistently high annual gross financing needs, averaging 27% of GDP over the past decade. This level is notably higher than the emerging market threshold of 15%.
In the past two decades, Pakistan has witnessed two consecutive years of the highest budget deficits in 2022 and 2023. The World Bank’s economist, Adnan Ghuman, pointed out that a budget deficit of 7.7% of the GDP is anticipated for the current fiscal year, a staggering Rs1.3 trillion above the government’s target.
The World Bank expressed concerns over these persistent, significant budget shortfalls, which have led to the rapid accumulation of public debt. This, in turn, has crowded out private investment and contributed to macroeconomic volatility.
