ISLAMABAD: A report compiled by the Auditor General of Pakistan (AGP) showed that Pakistan's huge public debt and liabilities touched Rs12.1 trillion in 2011 and public debt services ate up 43.7 percent of government revenues in this financial year.

According to the Ministry of Finance's Audit Report for 2011-12 on Fiscal Responsibility and Debt Limitation Act, 2005, the ratio of public debt to government revenues was alarming. It was well above the level of FY 2007, before onset of the economic downturn. The government, it said, needed to be cautious as over 80 percent of debt crisis at international level translated to a debt-to-GDP ratio of less than 60 percent and was linked to the loss of investor's confidence.

The report said that the real challenge was financing the current deficit.

"Risk to macroeconomic stability was rising," State Bank of Pakistan (BP) warned the government in its second quarter FY 2012.

The report further said that the office of the auditor-general had recommended the government that serious efforts were required to improve Pakistan's low tax-to-GDP ratio, the country's biggest structural weakness.

Incessant government borrowing from the central bank, a major source of alarm, "needs to be regulated as it is fuelling inflation, shaking public trust in national currency and will leads to financial crisis and a debt trap".  The report said that because of a lack of serious measures in terms of governance, the economy was on the path of a downward spiral.

Expat worker's remittances, all other components of account deteriorated during second quarter FY 2012. "Slow economic and export growth, cuts on development spending, energy shortage, pressure of IMF loan repayments and the biggest challenge of financing the current account deficit puts the economy in royal trouble."

Pakistan, with a public debt of over Rs12 trillion, does not have a well functional, professional and dedicated Debt Management Office (DMO).

Debt servicing of total Debt and Liabilities (TDL) reached Rs1 trillion in FY 2011, which was 5.8 percent of GDP, the report said.

It also showed that the total exchange loss sustained over the past four years (2008-2011) was Rs755.5 billion. Pakistan incurred an exchange loss of Rs217 billion in FY 2008, Rs4.5 billion in FY 2009, Rs237 billion in FY 2010 and Rs297 billion in FY 2011. 

The government's premature exit from IMF's Standby Agreement and the country's low rating resulted in low external inflows as International Financial Institutions (IFIs) require formal endorsement from the IMF before extending external loans.

Due to low foreign inflow, the bulk of the economy's needs "are being met through domestic borrowings".