LAHORE: The Punjab government’s debt stock, local and external, has jumped to Rs 1,652.2 billion by the end of March 2023, a surge of 24.5 percent in three months mainly due to currency devaluation.

As per a report released by the Punjab Finance Ministry for the period between January 1 and March 31, the government’s liabilities bulged from Rs 1,327.5 billion (in December 2022) to Rs 1,652.2 billion, an increase of 24.5 percent (Rs 325 billion) compared to the end of December 2022. The domestic loans declined from Rs 3 billion to Rs 2.7 billion, whereas external loans swelled from Rs 1,324.5 billion to Rs 1,649.5 billion. These loans collectively are 4.49 percent of Punjab’s Gross Domestic Product (GDP).

Citing the reason for increase in the loans, the report observed that this increase is mainly attributable to a forex exchange loss of Rs 317 billion realised during the last three months (January-March 2023). Moreover, the net new debt received during the quarter under review amounts to Rs 8 billion.

The report stated that the outstanding debt stock in March 2023 is exclusive of provincial guarantees awarded to various Punjab government entities, commodity debt and projects. It also pointed out that the outstanding commodity debt stood at Rs 456 billion at the end of March 2023, secured by wheat stock procured by the government for commodity operation along with a guarantee in the form of credit limit by the federal government.

The debt portfolio predominantly comprises borrowing from external sources, with 99.8 percent coming from multilateral agencies and bilateral loans contracted on concessional terms (low cost and longer tenor) procured mainly for infrastructure development and reform support. In contrast, only 0.2 percent of the debt portfolio is domestically borrowed from the federal government.

The report highlighted that the government’s external debt is derived mainly from three key sources, with around 50 percent coming from World Bank (the International Development Association and International Bank for Reconstruction and Development), 23 percent from China, 23 percent from Asian Development Bank and four percent from other sources.

As per the report, the agriculture and livestock sector remained the major recipient of government borrowing, as its share constitutes 26 percent of the total outstanding, followed by transport and communication 24 percent, education 22 percent, urban and community development 12 percent, governance 8 percent, health 4 percent and others 4 percent.

Moreover, it pointed out that the government’s debt portfolio is dominated by foreign currency borrowings, with total exposure residing at 99.8 percent of outstanding debt. Currency-wise exposure is denominated in American dollar (72 percent) followed by Special Drawing Rights (19 percent), Japanese Yen (5.3 percent) and Chinese Yuan (3 percent).

Copyright Business Recorder, 2023


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