Debt service costs Rs1.079trn in July-March

Spending on development, defence outscored

ISLAMABAD: Pakistan’s total debt service costs stood at Rs1,079 billion in the first nine months of the current fiscal year, higher than the cumulative spending on development and defence during the period, a government document revealed on Thursday.  

The finance ministry, in its report on the fiscal operation for the first three quarters (July-March) of 2015/16, said debt servicing on domestic loans stood at Rs1,002 billion, while that on foreign loans amounted to Rs76 billion.

The report said the defence expenditure remained the second big ticket item in the fiscal account as it stood at Rs482.912 billion in July-March 2015/16.

The development expenditures at the federal level remained the lowest among three major Ds (debt servicing, defence and development) as the federal public sector development program just consumed Rs251.295 billion in the first nine months.

About 40 percent of Pakistan’s outstanding debt -- both local and foreign -- is due to mature in 2016, according to data compiled by Bloomberg. That’s roughly $45 billion, of which about Rs4.3 trillion ($41 billion) is in local currency, it added.

The provincial expenditures on development surpassed the federal government’s spending on development scheme with the federating units having spent Rs372 billion on the development programs in the period under review.

The finance ministry’s document again showed that the statistical discrepancy on the higher side, apparently in a bid to cover up expenditures. It was Rs145.825 billion during the first nine months of the current fiscal year as against Rs61 billion in the same period a year ago.

The head of statistical discrepancy in the fiscal account contains revenues and expenditures whose source and purpose are not known for the time being.

Interestingly, the International Monetary Fund (IMF) also endorsed and validated such a massive surge in ‘statistical discrepancy’ in its recently-held review talks in Dubai on the release of tranche under the $6.64 billion extended fund facility.

This statistical discrepancy stood at just Rs8.646 billion in the first six months (July-Dec) period of 2015/16. This proved that the discrepancy was abruptly surged during Jan-March.

The fiscal document further showed that the country fetched a total revenue of Rs2,961.896 billion in the first nine months of 2015/16 against the total incurred expenditures of Rs3,971 billion, indicating budget deficit in the range of Rs1,009.416 billion, or 3.4 percent of GDP.

The government is struggling to restrict the budget deficit at 4.3 percent till June-end. All out efforts are underway to curtail the deficit in the range of one percent in the last quarter (April-June) as per the government’s commitment with the IMF.

July-March total revenue included tax revenue of Rs2,480 billion (both by federal and provincial governments) and non-tax revenue of Rs480.904 billion.

Economics professor Wasim Shahid Malik at Quaid-e-Azam University, in his presentation at a seminar, said Pakistan’s expenditures are facing severe structural rigidities as more than 53 percent of federal government’s expenditures are because of interest payments, defence, and salaries and perks, another 29 percent on subsidies and grants and only 18 percent of the government’s expenditure is adjustable.

Malik said public debt is on the rising side; of which two third (69 percent) is domestic debt and one-third (31 percent) is external debt.

The domestic debt carries an average interest rate of 10.7 percent per annum while external debt has an average interest rate of 1.9 percent per annum.

In 2014/15, of the total interest cost of debt of Rs1.3 trillion, domestic debt contributed 92 percent (Rs1.2 trillion) while foreign debt added only eight percent (Rs100 billion).

“Pakistan requires debt swap as 15 percent per annum debt swap can provide an additional saving of 0.3 percent of GDP per annum for providing breathing space,” Malik said.