Rs 484 Billion spent on domestic debt servicing in Pakistan Fiscal Year 2011-12

KARACHI: Domestic debt servicing expense just reached at 484 Billion rupees in the current fiscal year. It is followed primarily by the increasing needs of the federal government and partially because of higher cost of lending.
State Bank of Pakistan has stated that, due to the higher borrowing from the domestic banking system for budgetary support has increased the burden of debt servicing on federal government. The rate of increase in the debt servicing registered a healthy growth of 23 % during the first eight months of the current fiscal year 2011-2012. It was mainly due to the costly borrowing followed by the rigid monetary policy.
During the first eight months (July 2011-Feb2012) of current fiscal year, the federal government has spent 484.1 Billion Rupee on the account of debt servicing, which is 90.1 billion rupees more than the corresponding period of last fiscal year.

While, debt servicing on all three components of borrowing (permanent, floating and unfunded) has showed increasing trend, a major increase can be seen in permanent debt.
Interest fee on permanent debt stated an increase of 83 percent during the first eight months of the current financial year. With this increase, the interest payment on permanent debt has increased to 97.5 Billion rupees during eight months of this fiscal year. While, in the same period of last fiscal year the interest payment on permanent debt was 53 billion rupees. So, in current fiscal year there is the increase of 44.5 Billion rupees in the interest payment of permanent debts.
The eight months debt servicing on permanent debt in current financial year is also greater than the last year’s debt servicing, which was 91.8 billion. Permanent debt include federal government bonds, market loan, federal investment bonds, income tax bonds, government of Pakistan Ijara Sukuk and prize bonds, etc.
The floating debt includes Market Treasury Bills, Treasury Bills and MTBs for replenishment of cash. The federal government spent 225.3 billion rupees on debt servicing of floating debt as compared to Rs 214 billion in same period of last financial year, showing rise of 5.2 percent or Rs 11.3 billion rupees.
With a boost of 27.5 percent or 34.3 billion rupees, debt servicing of unfunded debt, which includes postal life insurance and GP fund, saving schemes (net of prize bond) has increased from 127 billion rupees to 161.3 billion rupees during the period under review.
Analyst said that, in the absence of external financing, just relying on the costly domestic resources for financing fiscal imbalances is increasing the country’s debt servicing burden.
In the light of current revenue collection and higher deficits incurred during past several years, increase in debt servicing is likely to further go up due to rising borrowing requirements, they added.

They said that during the current fiscal year the federal government could not meet the self-imposed limit of ‘zero’ net quarterly borrowing from central bank.

Interest payments on the PIBs, raised for settling circular debt, will start in the final quarter of current fiscal year, therefore it is being expected that interest payments on domestic debt are likely to post substantial growth from fourth quarter of current fiscal year, they added.