Economic Meltdown despite Mounting Debt

By Mohammad Ishaq Dar (Ex-Finance Minister)

December 9, 2021 10:44 AM

“Public debt (Gross)”, also known as Sovereign Debt, is the result of a country’s accumulated budget deficits (i.e. expenditure less revenue) and the effects of the devaluation of its national currency.

As per the Fiscal Responsibility and Debt Limitation Act (FRDLA), the “Total Debt of the Government” is the Gross Public Debt, both external and domestic, of the Federal and Provincial Governments together with the debt owed to the IMF, less the Government Deposits with the banking system, serviced and paid back out of the Federal Consolidated Fund (FCF) account maintained with State Bank of Pakistan (SBP).

Gross Public Debt and Total Debt of the Government:

Gross Public Debt in Musharraf’s era 1999-2008 increased by 97% to Rs 5,800 billion, in PPP’s tenure 2008-13 by 146% to Rs 14,291 billion and in PMLN’s tenure 2013-18 by 75% to Rs 24,952 billion. However, there were government deposits of Rs 1,901 billion with the banking system in June 2018 and after these are deducted, as per FRDLA, from Gross Public Debt of Rs 24,952 billion, the Total Debt of the Government was Rs 23,024 billion or 67% of the GDP.

PTI government increased public debt from Rs 25 trillion in June 2018 to Rs 41.5 trillion by September this year, an addition of Rs 16.5 trillion during PTI’s 39-month tenure. This indicates an increase of 66 percent in public debt from June 2018 to September 2021. PMLN increase in public debt during its five years 2013-18 was Rs 10.7 trillion.

Break up of increase of Rs 16.5 trillion in Public Debt:

Domestic debt swelled by Rs 10 trillion (from 16.4 trillion to 26.4 trillion), External Debt increased by Rs 6 trillion (from 7.8 trillion to 13.8 trillion) and the IMF figure rose by Rs 0.5 trillion (from 0.7 trillion to 1.2 trillion).

External debt, which is part of public debt explained above, in US dollars has increased from $ 75.3 billion in June 2018 to $ 99.7 billion in September 2021. External annual debt servicing in dollars has increased from $ 7.5 billion to $ 13.4 billion, registering an increase of 79 percent.

Total Debt and Liabilities:

Adding to the Gross Public Debt, the liabilities relating to the private sector’s external debt, PSE’s debt, commodity operations’ borrowing and inter-company external debt from direct investors abroad is known in Pakistan as “Total Debt and Liabilities”. The liabilities so added, are neither the responsibility nor liability of the Federal Government nor payable out of its FCF account maintained with the SBP.

Total debt and liabilities figure being higher, though part of it not government’s liability, has been a favourite one for Imran Khan’s unique politics. While in opposition, he always quoted this number, both domestically and abroad, and continued doing so after assuming PM office in 2018.

During PMLN five years’ tenure 2013-18, total debt and liabilities increased by Rs 13,541 billion from Rs 16,338 billion to Rs 29,879 billion. As per the latest figures released by SBP, the same has ballooned to Rs 50,484 billion with an unprecedented increase of Rs 20,605 billion or 69 percent in 39 months only to September 2021.

Total debt and liabilities in the preceding paragraph include total external debt and liabilities which in US dollars increased from $ 95.2 billion in June 2018 to $ 127 billion in September 2021; an increase of $ 31.8 billion during PTI’s 39 months tenure.

However, loans/ deposits taken by the PTI government from Saudi Arabia, UAE, Qatar and China (including swaps) are not included in the total external debt liabilities as same have been directly booked/parked in the balance sheet of SBP, which indeed is a departure from the previous standard practice.

Public Debt to GDP:

World-over, public debt is discussed with reference to its percentage to GDP of the country as it is more meaningful and relevant in the Economy context. Public Debt to GDP of Pakistan in June 2018 was 72 percent.

Despite political instability created in the country through sponsored Dawn and Panama dramas in 2016-17, the gross public debt to GDP increased by 8 percent to 72 percent during PMLN tenure 2013-18 and the GDP growth by 54% from Rs 22,386 billion to Rs 34,397 billion in the same period.

As per the World Bank report “Finding the Tipping Point--When Sovereign Debt Turns Bad”, it’s a serious situation when a country’s debt reaches 77 percent of its GDP.

Imran Khan government has already taken in September 2021 the public debt to GDP to 77 percent which was 72 percent in June 2018.

Per-capita Public Debt:

Per Capita public debt was Rs 144,000 in June 2018 which has increased to Rs 235,000 by September 2021, an addition of Rs 91,000 or 63 percent per capita during PTI’s tenure.

Per Day addition in Public Debt:

The average daily increase in public debt during PMLN’s five years 2013-18 was Rs 5.8 billion as compared to PTI’s daily increase of Rs 13.9 billion per day during 39 months to September 2021 which is 240 percent of PMLN’s daily average.

Public Pledge and delivery:

Imran Khan had been very critical of the economic policies followed by the previous PPP and PMLN governments, particularly the rising Public Debt. Reiterating his earlier criticism on this subject in February 2019, he promised again to the public at large that his government would bring down the total debt and liabilities by Rs 10,000 billion. Just a day before the release by SBP of the latest public debt figures in the last week of November 2021, he described the increasing debt as a “national security issue”.

Sadly, having created globally a bad image of Pakistan with reference to its public debt, Imran Khan government’s performance or delivery on his promise is totally opposite as his government, instead of retiring or atleast halting the increase, has already added over     Rs 20,600 billion in the total debt and liabilities of Pakistan in its 39 months of governance.

Unfortunately, having miserably failed so far in achieving the national revenue targets and controlling the hike in public expenditure coupled with the massive devaluation of the Pak rupee, Imran Khan government has landed the country into a severe Debt crisis situation over which his government neither has any control or will to resolve nor appropriate economic policies and road map to deal with it. This doomed performance viz public debt is no different than an overall failure of this government to manage the country’s economy, foreign policy and security related issues.


The economy has been grounded by the government in the last three years despite mounting public debt; inflation, poverty and unemployment numbers have touched new peaks and the sufferings of people are painful. PTI’s incompetence, misgovernance, bad performance, anti-public and failed economic policies are quite visible by now to the nation and the whole world.

The author, a UK Fellow Chartered Accountant, is former Finance Minister of Pakistan and former Leader of Opposition in the Senate of Pakistan. Twitter: @MIshaqDar50

Written By

Mohammad Ishaq Dar (Ex-Finance Minister)

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