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The Pak Banker - - FRONT PAGE -

It seems there is no end to the bor­row­ing spree by the govern­ment. Ac­cord­ing to a re­port, the federal govern­ment has sought Par­lia­ment's ap­proval to bor­row a whop­ping Rs22 tril­lion in the next fi­nan­cial year to ser­vice its ma­tur­ing pub­lic debt. This amount is 44% or Rs6.7 tril­lion higher than the fig­ure for the on­go­ing year and will be used to re­pay do­mes­tic, for­eign debt and the in­ter­est on th­ese loans. The Rs22 tril­lion in loans will be ob­tained dur­ing fis­cal year 2018-19, start­ing from July 1. De­mands of about Rs22 tril­lion were placed be­fore the Na­tional Assem­bly un­der Ar­ti­cle 82 (I) of the Con­sti­tu­tion as the Charged Ex­pen­di­tures. In case of "Charged Ex­pen­di­ture", the Na­tional Assem­bly can only de­bate but can­not veto the pro­posed spend­ing bill.

Ex­cept Rs1.62 tril­lion that will be part of the federal bud­get, the rest of the amounts will not be booked in the bud­get and will be di­rectly bor­rowed from the do­mes­tic and the for­eign mar­kets to re­pay and ser­vice the loans ob­tained in the past. The in­ter­est pay­ments on do­mes­tic and for­eign loans would con­sume roughly 31% or Rs1.62 tril­lion of the pro­posed bud­get of Rs5.247 tril­lion of the next fis­cal year. As against Rs13.16 tril­lion bor­row­ing in the out­go­ing fis­cal year, the fi­nance min­is­ter has sought ap­proval for Rs21.912 tril­lion as bor­row­ing for re­pay­ment of do­mes­tic debt in the next fis­cal year. The amount is 60.5% or nearly Rs8 tril­lion higher than the out­go­ing fis­cal year.

The fi­nance min­is­ter has placed another de­mand for Rs1.4 tril­lion to ser­vice do­mes­tic debt, which is 13% or Rs161 bil­lion higher than the out­go­ing fis­cal year. To re­pay the for­eign loans, the fi­nance min­is­ter has sought whop­ping Rs601.8 bil­lion in the new fis­cal year, which will be ob­tained from for­eign lenders. The re­quire­ments for for­eign loans re­pay­ments are up by 210% or Rs315.8 bil­lion within a year. This is mainly be­cause of the govern­ment's fail­ure to en­hance ex­ports and at­tract suf­fi­cient for­eign di­rect in­vest­ment. The govern­ment has sought another Rs229.2 bil­lion to pay in­ter­est on the for­eign loans, which is higher by Rs97.3 bil­lion or 73.7% in a sin­gle year. In ad­di­tion, the govern­ment has placed Rs174.2-bil­lion de­mand be­fore the Na­tional Assem­bly to re­pay the short-term for­eign loans, which is higher by 338% or Rs134.5 bil­lion. The short-term for­eign loan is a new phe­nom­e­non that the PML-N govern­ment in­tro­duced af­ter com­ing into power.

The bor­row­ing plan un­der­scores Pak­istan's grow­ing de­pen­dence on do­mes­tic and for­eign lenders at a time when the coun­try also faces chal­lenges to meet its ex­ter­nal fi­nanc­ing re­quire­ments. For the last five years, Pak­istan has been on a bor­row­ing spree and to de­flect at­ten­tions from bor­row­ings, the govern­ment has been ap­ply­ing innovative tech­niques in­clud­ing chang­ing the def­i­ni­tion of the pub­lic debt in the last bud­get. By the end of PML-N's five-year term, the Pub­lic Debt-to-GDP ra­tio has been es­ti­mated to jump at 70.1% of GDP, which will be the high­est ra­tio in the last 15 years. The govern­ment was legally bound to limit the debt to be­low 60% of GDP. When the PML-N govern­ment came into power the ra­tio was 64% of GDP.

As against 55.2% share in March last year, the share of long-term pub­lic debt has shrunk to only 45.2% or Rs7.34 tril­lion by March this year, ac­cord­ing to the cen­tral bank. This means that the fi­nance min­istry's debt re­fi­nanc­ing risks have sig­nif­i­cantly in­creased.

This will ex­pose the govern­ment to ex­ploita­tion by com­mer­cial banks, which have al­ready started dic­tat­ing their terms due to mount­ing fi­nanc­ing needs. The lo­cal com­mer­cial banks are not pro­vid­ing long-term loans in an­tic­i­pa­tion of in­crease in in­ter­est rates in the com­ing months. Due to this, the govern­ment's bor­row­ings have largely shifted to the State Bank of Pak­istan. This has wors­ened its debt in­di­ca­tors fur­ther.

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