Debt servicing surges by 64pc due to high interest rate in first half of fiscal year

ISLAMABAD: Higher interest rates have led to a 64 percent increase in the total debt servicing bill in the first half of the current fiscal year, resulting in a deficit in the net revenue receipts of the federal government.

With major expenditures, including defence, pensions, salaries, the functioning of the civil government, development, subsidies, grants to provinces, and others, the federal government has no choice but to secure loans from domestic and foreign sources to finance its expanding budget deficit.

According to the fiscal operations released by the financé ministry on Monday, the overall budget deficit ballooned to Rs1.812 trillion, equivalent to 2.3 percent of the gross domestic product (GDP) in the first six months (July-Dec) of the current fiscal year. This is compared to Rs1.68 trillion, or two percent of GDP, in the same period of the last financial year. The overall fiscal deficit had reached Rs6.5 trillion, equivalent to 7.7 percent of GDP, for the last financial year.

The fiscal deficit is projected to be divided into a ratio of 40:60 percent in the first and second half, based on historical trends. Given these prevailing trends, it is apparent that the overall fiscal deficit is set to breach the commitment made to the IMF, reaching 6.5 percent of GDP by the end of June 2024. In a positive development to satisfy the IMF, the primary balance achieved a positive figure of Rs1.81 trillion in the first half, as the government committed to maintaining a primary balance surplus in the range of Rs0.45 trillion for the entire financial year.