Debt re­tire­ment

The Pak Banker - - FRONT PAGE -

Debt is pil­ing up fast and debt ser­vic­ing has emerged as a crit­i­cal eco­nomic is­sue. Ac­cord­ing to a re­port, the fed­eral gov­ern­ment has pro­jected that it will spend Rs2.2 tril­lion on pub­lic debt re­tire­ment in the up­com­ing fis­cal year 2018-19 in­clud­ing for­eign loan re­pay­ments and pay­ment of in­ter­est on the huge debt pile. It had es­ti­mated spend­ing of Rs1.64 tril­lion on re­tir­ing and ser­vic­ing the pub­lic debt in the out­go­ing fi­nan­cial year 2017-18, but ac­tual ex­pen­di­ture jumped up to Rs1.95 tril­lion. On the other hand, to­tal out­lay for the FY19 bud­get is es­ti­mated at Rs5.932 tril­lion in­clud­ing for­eign loans and grants, which is 16.2% higher than the FY18 es­ti­mate. Of this, cur­rent ex­pen­di­ture is pro­jected at Rs4.780 tril­lion and de­vel­op­ment ex­pen­di­ture at Rs1.152 tril­lion.

Of the to­tal ex­pen­di­ture, the gov­ern­ment will spend Rs1.62 tril­lion on mark-up pay­ment on the pub­lic debt. Out of that, Rs1.39 tril­lion will be spent on mark-up on do­mes­tic debt whereas Rs229.23 bil­lion will be utilised to pay mark-up on for­eign debt. From the cur­rent ex­pen­di­ture, the gov­ern­ment will spend Rs601.75 bil­lion on re­pay­ing for­eign loans in the next fis­cal year. For the out­go­ing year, an amount of Rs1.64 tril­lion had been ear­marked to pay the debt and mark-up on for­eign and do­mes­tic loans, but the tar­get was later re­vised up­wards to Rs1.95 tril­lion fol­low­ing an in­crease in gov­ern­ment bor­row­ing.

Some economists believe that pres­sure will mount on the al­ready shrink­ing for­eign cur­rency re­serves with the huge debt ser­vic­ing re­quire­ment in fu­ture in or­der to re­pay the debt taken for Chi­naPak­istan Eco­nomic Cor­ri­dor (CPEC) projects. They point out that the gov­ern­ment will be seek­ing more for­eign loans to pay off the pub­lic debt, but the na­tional econ­omy will not be able to bear the bur­den of the swelling debt pile. Ac­cord­ing to bud­get doc­u­ments, ex­ter­nal re­ceipts for 2018-19 have been pro­jected at Rs1.118 tril­lion, up 33.4% from the bud­get es­ti­mate of 2017-18.

It is rel­e­vant to point out here that the gov­ern­ment had an­tic­i­pated a flow of Rs837.8 bil­lion in such re­ceipts in the out­go­ing fi­nan­cial year, but now ac­cord­ing to re­vised es­ti­mates it ex­pected the re­ceipt of Rs1.229 tril­lion because of a hefty in­crease in loans taken from com­mer­cial banks. Ac­cord­ing to the bud­get books for FY18, Rs799.92 bil­lion was ex­pected to be re­ceived in ex­ter­nal loans which in­cluded project and pro­gramme fi­nanc­ing, but now it has been re­vised up­wards to Rs1.182 tril­lion.

For the next fis­cal year, a flow of Rs1.080 tril­lion is ex­pected on ac­count of ex­ter­nal loans. From the Is­lamic De­vel­op­ment Bank, the gov­ern­ment had es­ti­mated to re­ceive Rs163.5 bil­lion in the out­go­ing year, but now it is hop­ing to get Rs140.06 bil­lion ac­cord­ing to re­vised es­ti­mates. For the next year, the gov­ern­ment has tar­geted to re­ceive Rs117 bil­lion from the bank. In the out­go­ing year, Rs105.5 bil­lion was ex­pected to be raised through the is­suance of Sukuk (Is­lamic bond), but later the fig­ure was re­vised up­wards to Rs274.35 bil­lion. Next year, an amount of Rs234 bil­lon is ex­pected to be bor­rowed through bond float. The gov­ern­ment had bud­geted to bor­row Rs105.5 bil­lion from com­mer­cial banks in the out­go­ing year, but the amount swelled to Rs406.29 bil­lion ac­cord­ing to re­vised es­ti­mates. The tar­get for next year has been fixed at Rs351 bil­lion.

The real chal­lenge for the gov­ern­ment is to grad­u­ally re­duce its de­pen­dence on loans but no head­way is be­ing made in this direc­tion. The only way out of the situation is to step up our ef­forts for lo­cal rev­enue gen­er­a­tion for which there is im­mense unuti­lized po­ten­tial.

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