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