Govt to cough up Rs2.9tr on debt payments next year

ISLAMABAD: Under a Godzilla-like debt burden, Pakistan will spend around Rs2.946 trillion of public money on interest payments and retiring principal amounts during the upcoming fiscal year of 2020/21, official documents revealed.

The debt servicing will eat up more than two-fifth of country’s total budget outlay. Interestingly, during the upcoming fiscal year, the amount earmarked for debt servicing is around a trillion rupees less than outgoing fiscal’s revised estimate of Rs3.954 trillion. This decline is due to some debt rescheduling by some bilateral lenders (Paris club) and from other sources.

Debt servicing is the top category in Pakistan’s budgeted expenditures in FY2020/21, which is about 41.28 percent of the federal budget’s total outlay of Rs7.136 trillion announced by the Minister for Industries and Production Hammad Azhar in the lower house of the parliament.

In the budget for 2020/21, the country will expend Rs315.135 billion on foreign debt servicing (interest payment), while it will spend no money on foreign loan repayment (or principal amount) – in outgoing fiscal it was Rs1.245 trillion.

On domestic debt servicing, the economy will consume Rs2.631 trillion. During the outgoing fiscal year, the government has spent huge amount of Rs3.54 trillion on public debt servicing (paying interest and principal amount), against the budgeted Rs3.987 trillion.

The borrowing, which has been made over last several years, is almost beyond the ability of this poor country to pay. This debt financing will be the major chunk of country’s total budget expenditures outlay, as already the ballooning public debt has almost paralysed the economy, where more than half of the population is living below poverty line.

Economists believe that debt rescheduling would help in coping up with the COVID-19 effects that have been playing havoc with the economy. Adviser to Prime Minister on Finance Hafeez Shaikh said since the coronavirus cases emerged in Pakistan, the economy has lost around Rs3 trillion so far.

The public debt of an economy increases when it is unable to meet its expenditures through own resources (tax and others) and to bridge the fiscal deficit), it borrows more from local and foreign lenders.

Pakistan’s public debt and liabilities (domestic and external) has been recorded at a huge Rs35.207 trillion by end of March 2020, increasing by two-and-a-half-time since 2013 when it was recorded at Rs14.29 trillion. This total public debt is 84.38 percent of gross domestic product (GDP), which at present is Rs41.72 trillion.

With the huge borrowings, the country has violated the Fiscal Responsibility and Debt Limitation Act, which calls for limiting debt to GDP ratio below 60 percent. At present, each Pakistani man, woman and child is indebted with Rs166,723 which is several times more than what the government spends on health and children education. Pakistan’s population is 211.17 million.

Of the total public debt, domestic debt was recorded at Rs22.478 trillion at March-end. External debt and liabilities have been recorded at $110 billion. With the depreciation of rupee, the debt is increasing in rupees terms. It indicates that if dollar appreciates by one rupee against Pakistani currency, the external debt burden increases Rs110 billion.

During the first nine months of the current fiscal year, the government has borrowed $8.017 billion. Disbursements from multilateral sources (including IMF) amounted to $ 4.839 billion and accounted for 60 percent of the total disbursements, out of which ADB and IMF were the main contributors. Disbursements from bilateral sources stood at $1.305 billion. Out of this total, disbursements from Saudi Arabia and China were $720 million and $460 million, respectively. Commercial loans contributed $1.873 billion in external public debt disbursements. In wake of the outbreak of pandemic COVID-19, Pakistan has secured $1,386 million under IMF’s rapid financing instrument facility to counter the negative impacts of the outbreak on the economy by increasing social sector spending.?