Debt servicing to eat up two-fifth of total budget

ISLAMABAD: Already under a constant ‘Godzilla-like’ debt burden, the Pakistani economy will spend a whopping Rs1.596 trillion during 2015-16 on public debt retirement and payment of interest on the huge borrowing piled up on the nation. It has almost paralyzed the economy, where more than half of the population is living below the poverty line.
This is the top category in Pakistan’s budgeted expenditures in FY2015-16. This is about two-fifths (39.03 percent) of the federal budget 2015-16 total outlay of Rs4.089 trillion announced by Federal Finance Minister Muhammad Ishaq Dar in the Lower House of Parliament on Friday.
After recklessly piling up trillions of rupees public debt on the nation without sensing its negative fallout, it will now face the brunt and would spend more than the total federal and provincial development expenditures (or Public Sector Development Programme-PSDP) which is of Rs1.514 trillion (federal Rs700 bill and provinces Rs814 billion).
The amount allocated for public debt servicing is far more than planned expenditures of the country’s development and 5.846 percent of the country’s GDP.On foreign debt servicing (interest payment), the country will expend Rs111.219 billion, while on foreign loan repayment (or principal amount) Rs316.37 billion will be spent. On domestic debt servicing, the economy will consume Rs1.168 billion.
During the outgoing fiscal 2014/15, revised estimates on public debt servicing (paying interest and principal amount), the government has spent a huge amount of Rs1.566 trillion against the budgeted Rs1.658 trillion in last budget 2013-14.
Economists believe the worse is yet to come, as paying this huge amount is impossible without more loans, sharp austerity or running down the country’s already depleted reserves. This allocated amount for debt servicing is even more than expenditures on health and education sector.
They believe pressure on foreign exchange reserves will mount with huge debt service requirement in the coming months. Deteriorating trade balance, high budget deficit and Pak rupee instability may be the most serious risk in the months ahead.
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 gap (that is called fiscal deficit), it borrows more from local and foreign lenders.
The Pakistani economy has been rapidly borrowing and since the year 2000, it ballooned by more than five-times to Rs16.936 trillion at present for which both ‘dictatorial’ and ‘political’ regimes are responsible.
It indicates that every Pakistani is indebted with Rs94,088 which is several times more than what the government spends on health and children education, the Pakistan’s Economic Survey 2014/15 revealed.
In 2001, Pakistan’s Public debt (external and domestic) was at Rs3.172 trillion that almost doubled to 6.126 trillion in 2008, when General Pervaiz Musharraf left the power, but at the end of five-year PPP-led government in 2013 it rose to Rs14.293 trillion and then so far in Nawaz Sharif government it jumped to Rs16.936 trillion (Rs11.93 trillion domestic and Rs5.0 trillion external debt).