1. 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 M acro E conomic I NSIGHTS

2. Rs billion Source: SBP Pakistan’s debt and liabilities - summary

3. Public debt Source: SBP 12.3 5.6 9.6 5.1

4. Public debt Change: Rs billion, end-June 20082014Absolute Multiple (x) Total public indebtedness6,42217,38510,9632.7 External2,9375,6192,6821.9 Domestic3,48511,7668,2813.4 Source: SBP

5. Public debt indicators

6. 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.)

7. Public debt under different definitions Source: SBP; Sakib Sherani

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

9. 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

10. 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)

11. 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 …

12. 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

13. 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

14. Thank You