Q3 FY25: Punjab's total debt portfolio surges 12pc
LAHORE: The Punjab government's total debt portfolio surged by Rs 20 billion, an increase of 1.2 percent, during the third quarter of the current fiscal year (FY) owing to a forex loss of Rs 17.5 billion and an increase in net debt position amounting to Rs 2.5 billion.
As per a report released by the Punjab Finance Ministry for the period between January 1, 2025, and March 30, 2025, at the end of the third quarter, debt stock stood at Rs 1,674.0 billion, out of which Rs 1,672.7 billion is from external lenders and Rs 1.3 billion is from domestic sources. These loans collectively are 2.5 percent of Punjab's Gross State Domestic Product (GSDP).
The report observed that Punjab's total debt stock surged from Rs 1,654 billion to Rs 1,674 billion in three months. However, the domestic loans showed a decline from Rs 1.5 billion (reported in December 2024) to Rs 1.3 billion. In contrast, external loans witnessed a gain from Rs 1,652.5 billion (reported in December 2024) to Rs 1,672.7 billion.
The report noted that the outstanding debt stock at the end of March 2025 excludes provincial guarantees (awarded to various Punjab government entities) and commodity debt. The outstanding commodity debt stood at Rs 16 billion at the end of March 2025 which is mostly secured by wheat stock procured by the government for commodity operation along with 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 55 percent coming from the International Development Association (IDA) and International Bank for Reconstruction and Development (IBRD), 21 percent from the Asian Development Bank, 20 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 20 percent, education 20 percent, urban and community development at 16 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 (69 percent), followed by Special Drawing Rights (23 percent), Japanese Yen (5 percent) and Chinese Yuan (2 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 overall, a significant portion (73 percent) of the debt portfolio comprises loans contracted at fixed interest rates and is not exposed to changes in international interest rates. However, the floating rate portion (27 percent) remains subject to periodic revision of interest rates since these loans attract floating reference rates (ie, SOFR, TONA, EURIBOR, etc).
On debt servicing, it noted that by the end of FY 2024-25, the government is expected to pay Rs 161 billion to service its foreign debts which includes principal and interest due on outstanding debt; out of the projected debt servicing, Rs 120.8 billion was paid during the three quarters of the current fiscal year.
Copyright Business Recorder, 2025
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