Five-month domestic debt servicing jumps by 38pc

KARACHI: The country’s domestic debt servicing soared by 38 per cent in the first five months of this fiscal year, reflecting excessive borrowing by the government to bridge widening fiscal deficit, shows a latest report of the State Bank of Pakistan (SBP).

The Monetary Policy Information Compendium for January issued on Friday revealed that both stocks of domestic debt and debt servicing increased during the July-November period of FY21.

Domestic debt servicing rose by Rs255 billion to Rs921bn during July-November as against Rs666bn in the corresponding period last year.

The increased debt servicing is practically restricting development spending plans of the government, which may result in poor economic growth rate. It has projected fiscal deficit target of 7pc for FY21.

The SBP in its first quarterly economic report for 2020-21 observed that higher debt servicing has eaten up most of the tax collected by the Federal Board of Revenue (FBR).

The SBP report said the primary balance posted a surplus of 0.6pc during July-September quarter, almost the same as in 1QFY20. However, the steep rise in interest payments consumed over 73pc of the FBR’s tax collection and constituted nearly 53.8pc of total federal expenditures, it said.

Rising debt servicing forces the government to borrow more which has further increased its liabilities. In entire FY20, it had to spend Rs2,387bn to service its domestic debt.

The highest increase was noted in the debt servicing of permanent debt which jumped by 77.6pc to Rs421bn in the July-November period of this fiscal year against Rs237bn in the same period of last year.

The stock of permanent debts, which mostly comprises Pakistan Investment Bonds (PIBs), rose to Rs15.492 trillion in November FY21. The stock added Rs1,406bn during the five-month period under review.

The long-term PIBs have been a strong instrument for banks and corporate sector to invest as they offer higher returns while the government also prefers to borrow through PIBs as it provides longer space for maturity of the papers. The PIBs constituted Rs14.033tr in total stocks of permanent debts.

The floating debt servicing increased by 30.6pc to Rs351bn during the five-month period compared to Rs269bn in the corresponding period last year. The floating debts are mainly market treasury bills.

However, the stock of T-bills decreased by Rs572bn to Rs5,005bn during the first five months of FY21.

The government paid Rs149bn in debt servicing for unfunded debts, which are mobilised through government savings schemes, fell by 6.6pc during the period under review.

The stock of savings schemes declined by Rs5bn to Rs3669bn till November FY21.