Total government debt observed an increase of 11.5% in August this year. The external debt has increased by 8% in the first two months of the current fiscal year. The steep devaluation of the rupee in the light of recent events has placed an additional burden on the government’s ability to maintain a stable forex reserve and exchange rate. The increasing value of the US dollar against the rupee increases the cost of debt servicing as interest is calculated in dollars. The devaluation of the rupee forces governments to borrow more to repay debts and reduce the fiscal gap, resulting in a vicious debt trap.
The rapid increase in external debt and ultimately total debt is due to more aggressive borrowing by the government. The government borrowing through Pakistan Investment Bonds (PIBs) was the highest from any single source as it touched 14.59 trillion in June this year, compared to Rs 13.39 trillion last year.
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