KARACHI: The country’s domestic debt increased 10 percent to Rs14.192 trillion during the past one year, as the government is still reliant on internal money sources amid dried-up foreign funds to reduce budget deficit.
The State Bank of Pakistan (SBP) data on Tuesday showed that total domestic debts amounted to Rs14.192 trillion as of December 2016 as against Rs12.879 trillion by the end of 2015. Analysts said the government is dependent on domestic sources, mostly, banks in the shape of treasury bills and bonds to finance its fiscal deficit.
“Treasury bills are still elephant in the bond market supported by the government’s strategy to meet budget-related expenditures via short-term securities,” an analyst said. “Unlike the previous trend, the ministry of finance has increased yields on treasury papers and bonds, reflecting that it would meet its borrowing requirements through these two instruments in the absence of external funding, especially, the US-backed coalition support fund.”
The central bank’s data showed that the outstanding amount of the SBP’s holding of market treasury bills (MTBs) stood at Rs2.835 trillion at the December-end 2016 as against Rs2.161 trillion in December 2015. The permanent, or a long-term, debt inched up to Rs5.215 trillion from Rs5.197. It includes borrowing from banks through Pakistan Investments Bonds (PIBs) and Ijara Sukuk. Unfunded debt rose to Rs2.579 trillion from Rs2.494 trillion.
The stock of floating debt — a main contributor to the rise in domestic debt — was recorded at Rs6.237 trillion as of December 31, 2016 from Rs5.03 billion a year ago. Within floating or short-term borrowing, market treasury bills were main source of bank financing for budget deficit. The government borrowed an amount of Rs3.402 trillion from banks via t-bills in December, compared with Rs2.655 trillion in the same month of last year.
The government projected the fiscal deficit at 3.8 percent of GDP in the current fiscal year of 2016/17. The budget deficit was recorded at 4.6 percent of GDP in the last fiscal year.
“Achieving the annual fiscal deficit target of 3.8 percent of GDP would be difficult on account of revenue shortfalls reported during the first quarter of FY17,” the SBP said, in its first quarterly report for the year 2016/17. “It will require additional fiscal consolidation efforts on the part of the government.” Finance minister Ishaq Dar said the country’s total public debt of more than Rs18 trillion – 64.8 percent the country’s GDP – is still manageable. In the past four years, the incumbent government managed to address the fiscal malfunctions by bringing up the tax-to-GDP ratio to 12.4 percent from less than 10 percent.
The fall in non-tax revenues and lower-than-expected tax collections by the Federal Board of Revenue, however, widened the fiscal deficit to 1.3 percent of GDP in Jul-September 2016/17.
The recent PIBs and MTBs auctions showed that banks continued to lock in their funds in risk-free government securities. However, the bid pattern tilted more towards three-month and six-month papers as market was not expecting the interest rates to fall further.
The government restored to the central bank’s borrowing, after exit from the International Monetary Fund’s loan program last year to finance deficit and settle maturing amount of PIBs.