Weak rupee drives up external debt

The central government’s debt, both within the country and to foreign entities, surged by nearly a third in the 12 months through August, reaching close to Rs64 trillion, State Bank of Pakistan data showed on Thursday. The 29 per cent increase in debt amounted to Rs14.4tr, as the figure stood at Rs49.57tr by the end of August 2022. Of the total amount, domestic debt rose 23pc to Rs39.79tr, up from Rs32.15tr in August 2022, whereas external debt jumped 39pc to Rs24.17tr, up from Rs17.42tr a year ago. This rise in domestic debt is concerning as it takes up most of the country’s tax revenue, reducing funds available for development and slowing down economic growth. A significant chunk of the revenue is now being used just to service (pay off the interest and principal on) this debt, at the expense of economic growth. In the first two months of this fiscal year (FY24), the total central government debt jumped 5.1pc. Factors like the high inflation rate of 29pc and interest rate of 22pc over these two months drove up domestic debt.