Public debt reaches Rs 10 trillion mark

Pakistan's public debt has reached Rs 10 trillion - 57.7 percent of total GDP according to the revised estimates noted in the Budget Strategy Paper (2011-14) approved by the cabinet last week. According to the Debt Policy Statement 2010-11, a requirement as laid out under section 7 of the Fiscal Responsibility and Debt Limitation Act 2005, public debt should not exceed 60 percent of GDP.
"58 percent is therefore not a source of concern and the government is hopeful that by the end of 2010-11 public debt would not exceed 60 percent of GDP", sources disclosed. The Strategy Paper disclosed a domestic debt of 5417 billion rupees while external debt was estimated at 4718 billion rupees.
The 'Pakistan Debt Policy statement 2010-11' notes: "As of 30th June 2010, the total public debt stood at 60.6 percent of GDP. It must be noted here that the limit of 60 percent of total public debt-to-GDP is applicable from the fiscal year 2012-13".
The statement says that public debt has important influence over the economy both in the short and the long run. Higher public debt raises solvency risks, constrains the capacity to use fiscal policy as a counter-cyclical tool, and can increase borrowing costs for sovereigns. Ultimately, increase in public debt may reduce output, growth and productivity.
Public debt was estimated at Rs 8.894 trillion for the entire year 2009-10; and increased in the first quarter (July-September) of the current fiscal year to Rs 9.473 trillion, an increase of Rs 1.265 billion or 16.6 percent higher than the debt stock at the end of last fiscal year. The government took Rs 798 billion from domestic sources while it borrowed Rs 189 billion from external sources to finance its fiscal operations.
Considerable borrowing from the banking system by the government reflects that the government is still relying on bank borrowing for budgetary support due to below target revenue collection. The State Bank of Pakistan has already warned that the overall borrowing from the bank for budgetary support by the federal government stood at Rs 511 billion from July 1, 2010 to April 23, 2011, compared to Rs 282 billion in corresponding period of last fiscal year, revealing a massive increase of Rs 229 billion.