Public debt-to-GDP ratio to touch 70.1 percent by end of FY 2017-18

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ISLAMABAD: The country’s public debt-to-GDP ratio is set to touch a 15 year high of 70.1 percent at end of the financial year 2017-18, eclipsing the 69.7 percent reached in FY 2003-2004.

The federal cabinet was informed on Wednesday by Ministry of Finance that public debt to GDP ratio was set to reach 70.1 percent, which is 20 percentage points higher than sustainable levels, reported Express Tribune.

Also, this high ratio is in contravention of the Fiscal Responsibility and Debt Limitation (FRDL) Act 2005.

The government had envisaged a target of 61.4 percent for the public-debt to GDP ratio for FY 2017-18, which is 10.1 percentage points higher than the restriction set by parliament.

For developing economies like Pakistan, 70.1 percent public debt to GDP ratio is 20 percentage points higher than what is sustainable for such countries.

Apprising the federal cabinet about the economy, Finance Secretary Arif Ahmed Khan said the public debt will touch Rs24 trillion by end of FY 2017-18.

Ex-Finance Minister Ishaq Minister while unveiling the budget in June last year had promised to decrease the public debt to GDP ratio to 61.4 percent by June 2018, but the current level is 8.7 percentage points (Rs2.9 trillion) higher than envisaged.

Special Assistant to PM on Revenue, Haroon Akhtar during the cabinet meeting said worsening of the debt position had ruined the government’s claims about the economy, sources in the cabinet disclosed.

As per the revised FRDL Act 2005, the public-debt-to-GDP ratio had to be reduced to 60 percent by FY 2017-18, the 70.1 percent ratio was in contravention of this requirement.

Three reasons were attributable for this rise in public-debt-to-GDP ratio, firstly a larger than the estimated budget deficit, rising cost of debt and 10 percent depreciation of the rupee against the dollar, said sources in the finance ministry.

The budget deficit target had been fixed at 4.1 percent of GDP by the Parliament for FY 2017-18, but the cabinet was informed on Tuesday, that this would rise to 5.5 percent of GDP or Rs1.9 trillion.

And the debt servicing cost is going to rise to Rs1.435 trillion by end of current FY 2017-18 against the target of Rs1.363 trillion.