Punjab witnesses 1.5pc decline in govt debt in 3 months

LAHORE: Punjab’s total government debt saw a decline of Rs 24.8 billion in the second quarter of the current fiscal year, which is a dip of 1.5 percent in three months due to a forex gain and a decrease in its net debt position.

According to a report released by the Punjab Finance Ministry for the period between October 1, 2024, and December 31, 2024 (the second quarter), the Punjab government’s debt stock stood at Rs 1,654 billion, of which Rs 1652.5 billion came from external lenders and Rs 1.5 billion from domestic sources.

These loans collectively account for 2.46 percent of Punjab’s Gross State Domestic Product (GSDP), which has slightly dropped from 2.49 percent (reported in September 2024).

The report observed that Punjab’s total debt stock decreased from Rs 1,678.8 to Rs 1,654 billion during the second quarter of FY 2024-25. The domestic loans showed a slight decline from Rs 1.6 billion (reported in September 2024) to Rs 1.5 billion. In contrast, external loans showed a significant drop from Rs 1,677.2 billion (reported in September 2024) to Rs 1,652.5 billion.

Citing the reason for the 1.5 percent drop in the loans, the report observed that this decrease is owing to the forex gain of Rs 12.1 billion (on account of depreciation of Special Drawing Rights (SDR), Japanese Yen and Chinese Yaun, and decrease in new debt position amounting to Rs 12.7 billion during second quarter of FY 2024-25.

The report noted that the outstanding debt stock at the end of December 2024 excluded provincial guarantees (awarded to various Punjab government entities) and commodity debt. The outstanding commodity debt stood at Rs 103 billion at the end of December 2024, which is mostly secured by wheat stock procured by the government for commodity operations and a Federal government guarantee in the form of a Cash Credit Limit (CCL).

The debt portfolio predominantly comprises borrowing from external sources, with 99.9 percent coming from multilateral agencies and bilateral loans contracted mostly on concessional terms (low cost and longer tenor), procured mainly for infrastructure development and reform support, whereas only 0.1 percent of the debt portfolio is domestically borrowed from the Federal government, the report stated.

Moreover, the report highlighted that the government’s external debt is derived mainly from three key sources, with around 54 percent coming from the International Development Association (IDA) and International Bank for Reconstruction and Development (IBRD), 21 percent from the Asian Development Bank, 21 percent from China and 4 percent from other sources.

As per the report, the agriculture, irrigation and livestock sector remained the major recipient of government borrowing, as its share constitutes 25 percent of the total outstanding, followed by transport and communication at 21 percent, education 20 percent, urban and community development at 15 percent, governance 10 percent, health 5 percent and others 4 percent.

Moreover, it pointed out that the government’s debt portfolio is dominated by foreign currency borrowings, with total exposure residing at 99.9 percent of the debt portfolio. Currency-wise exposure is denominated in USD (70 percent) followed by SDR (21 percent), Japanese Yen (5 percent), Chinese Yuan (2 percent) and others (1 percent). Hence, the report noted, the government’s debt, by its composition, remains exposed to foreign exchange risk; owing to this, any change in parity of the dollar and other foreign currencies with the rupee has a pronounced impact on the valuation of Punjab’s debt portfolio when translated into rupee terms. The report also noted that a significant portion (73 percent) of the debt portfolio comprises loans contracted on fixed interest rates and is not exposed to changes in international interest rates.

Copyright Business Recorder, 2025