Leading Issues in the Economy of Pakistan: Agenda for Reforms 12.2 Causes of Growth in Government Debt There is need to determine from a policy perspective point of view causes of the increase in government debt. Three factors contribute to an increase in government debt. These are respectively the primary budget deficit, level of debt servicing and the increase in the value of the external debt due to depreciation of the rupee. The relative contribution of these three factors is presented in Table 12.1. Table 12.1: Relative Contribution of Different Factors to Change in Government Debt, 2014-15 to 2021-22 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 Cumulative Increased in Government Debt 2,076 1,724 3,444 7,575 3,320 3,606 9,078 Contributing Factors(%) Primary Deficit 14.2 28.9 21.6 20.4 29.6 26.8 26.7 21.7 Debt Servicing 60.8 78.2 43.5 27.6 78.8 76.2 35.0 49.4 Depreciation of 25.0-7.1 34.9 52.0-8.4-3.0 38.8 28.9 the Rupee TOTAL 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: Estimated The findings in Table 12.2 are very revealing. Almost half the cumulative growth in government debt is due to the cost of debt servicing. This is followed by the contribution of 29 percent by depreciation of the rupee and the remainder, 21 percent, by the primary deficit annually in the federal budget. The two years, 2018-19 and 2021-22, when there was a relatively large absolute increase in government debt, the main cause was the big devaluation of 52 percent in 2018-19 and 39 percent in 2021-22. Overall, almost Rs 8.6 trillion increase in government debt in the six-year period is due to the devaluation of the rupee . 12.3 Principles of Debt Management The Debt Policy Coordination Office(DPCO) of the federal ministry of finance publishes the annual Debt Policy Statement . This report contains several risk indicators with regard to management of the government debt. These include the following: 120