Rapid rise in public debt

Monday, 8 October 2012 00:43 - - {{hitsCtrl.values.hits}}

The rise in public debt has crossed the Rs. 1 trillion mark within the first seven months of this year, renewing fresh concerns over sustainability.

As per provisional data, public debt as at July 2012 amounted to Rs. 6.16 trillion, up by Rs. 1.02 trillion or 20% from end 2011 figure of Rs. 5.133 trillion. In whole of 2011, the increase was only Rs. 543 billion or 12% over 2010.

The increase this year is high whereas from a year ago i.e. July last year, the rise is only Rs. 1.18 trillion.

Of the overall figure, foreign debt is nearing Rs. 3 trillion mark at Rs. 2,975 billion up by 27% or Rs. 646 billion from end of last year. Within the overall public debt, the share of foreign has increased to 48.3% by end July in comparison to 44.6% a year ago.

Domestic debt had increased by only 13.5% or Rs. 381 billion to Rs. 2.8 trillion in the first seven months of this year.

Treasury bonds remains the bulk of domestic debt with Rs. 2.11 trillion, up from Rs. 1.8 trillion in end 2011 and Rs. 1.75 trillion as at July last year.

The rise in foreign debt was partly on the back of the sale of $1 billion sovereign bond while borrowing. According to the 2012 Budget, the Government borrowing limit for the full year stands at Rs. 1.10 trillion of which Rs. 776 billion were to be raised via domestic sources and Rs. 382 billion from foreign.

As per July data, the composition has changed considerably with the Government having a greater appetite for foreign sources (Rs. 646 billion) given its attractiveness and relaying less on domestic sources. The latter has freed up liquidity for private sector though as part of boosting foreign inflows, the commercial banks have been encouraged to borrow from abroad.

Both the Opposition as well as private sector analysts have raised concern over the bloating public debt especially reliance on foreign.

Some analysts have also repeatedly warned about reserves being boosted via debt as opposed to the healthier route of exports including tourism receipts as well as higher foreign portfolio and direct investments.

Meanwhile, Treasury bill rates last week fell across maturities with 12 month bills reporting the largest decline of 54 basis points to 12.48%, while three-month and six-month yields dropped by 30 basis points and 47 basis points to close at 11.30% and 12.10% respectively.