In a report released by the State Bank of Pakistan (SBP) on Friday, it was revealed that despite low-interest rates, the government paid as much as Rs792b in servicing domestic debt in the first seven months of 2016-17 compared to Rs764b in the corresponding period last year.
The Monetary Policy Information Compendium for March disclosed that even the historically low-interest rate didn’t help in reducing the amount of debt servicing. The volume of debt servicing in the seven months remained too high and jeopardised the efforts to bring down the fiscal deficit to 4.1pc. It is a panicky situation for the government as it remains under severe pressure to retire circular debt amounting to Rs350b and sales tax refunds to the tune of Rs300b.
A recent report revealed the revenue collection missed its target by Rs168b in the first nine months of the current fiscal year. The finance minister Ishaq Dar mentioned last week the revenue collection of Rs2,258b in the first nine months of 2016-17 was an all-time high, although it missed the target of Rs2,426b. The fiscal deficit will further widen if the government decides to clear all outstanding dues.
Debt servicing in the seven months equals 35pc of the nine-month revenue collection. It indicates that the full-year debt servicing will cost a lot more than a year ago and hinder development plans.
Dar had recently mentioned that the level of debt will be brought down from 62pc to 60pc of the gross domestic product (GDP). To fund the rising debt servicing, it would need further borrowing which will further increase the stock of debt.
Another report released by the SBP reveals that the government borrowed Rs913b from the central bank during the first nine months of the current financial year. Its borrowing from private banks was Rs25b.
The compendium also stressed that debt servicing was 3.7pc of GDP in 2015-16. It was 30.3pc of tax revenues in the same year. If domestic debt servicing continues at the same pace, the total amount can be around Rs1,350b.