Recently, Pakistan’s total domestic and external debt soared to a record high of Rs. 38 trillion as of May 2021. The record increase is largely due to a high fiscal imbalance in the country’s economy. A detailed analysis of the country’s debt shows that in the first eleven months of the fiscal year 2020-21, the total debt stock rose by 8%. In June 2020, the total debt stock was worth Rs. 35.11 trillion.
In the FY 2020-21, domestic debt observed an increase of 12%. As of May 2021, the federal government’s domestic debt was worth Rs. 26.065 trillion. Domestic debt includes both long term debt and short term debt of Rs 19.8 trillion and Rs. 6.666 trillion respectively. External debt of the federal government also observed an increase of 1% from June last year, adding to the total debt of the country.
According to the State Bank of Pakistan, excessive dependence on foreign and domestic financing sources have exacerbated the debt problem for Pakistan. Economic policies should focus on harnessing the export base of the country because it helps generate revenue and reduce the trade deficit of the country. With a positive balance of trade and payment, Pakistan can reduce its total debt stock.