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May 26, 2017

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Debt servicing consumes 45pc taxpayers money

Debt servicing consumes 45pc taxpayers money

ISLAMABAD: The servicing of public debt has emerged as a monster to the economy as it alone has eaten up 1.410 trillion in just nine months of the outgoing fiscal 2016-17 against the budgeted target of 1.945 trillion. This means that public debt servicing has so far consumed nearly 45 percent of the total revenue of the country.

According to the Economic Survey 2016-17, the servicing of foreign debt has consumed in the first nine months of ongoing financial year 2016-17 the mammoth chunk  of taxpayer money of Rs85 billion against the target of Rs113 billion whereas the government has so far spent Rs1.009 trillion in the head of servicing against the target of Rs1.360 trillion. In addition, the government has also offloaded the loans of Rs315.6 billion against the target of Rs585.2 billion.

The Institute of Policy Reforms comprising independent exporters says in response to the contents of the Economic Survey that the recent high mark-up loans have begun to have an effect. This problem will grow with increased debt from China.

However, as per the Economic Survey, gross public debt has swelled up to Rs20.873 trillion by end of March 2017, while net public debt was Rs18,893 billion. Gross public debt recorded an increase of Rs1.194 trillion during the first nine months of the ncurrent fiscal year. Out of this total increase, increase in domestic debt was Rs1.121 trillion while government borrowing from domestic sources for financing of fiscal deficit was Rs1.018 trillion.

External debt currently stands at $58.4 billion with increase of $0.7 billion in first nine months. However, the foreign debt was at $48.1 billion in 2013. However, Finance Minister Ishaq Dar says that the public debt is well within Fiscal Responsibility and Debt Limitation (FRDL) Act as the government has managed to bring down it to the 59.3 percent of the GDP knowingly the FRDL allowed the debt at 60 percent of the GDP. In 2008, the public debt stood at 53.1 percent of GDP which was surged in 2013 by up to 60.2 percent of the GDP breaching the FRDL slightly. However, with prudent measures, the government has managed to bring down the public debt to 59.3 percent of GDP and the government in next fiscal year will take more measures to curtail the debt to GDP ratio more, says the minister.

Experts say that since the size of economy (GDP) has increased to whopping $300 billion which is why the debt to GDP has reduced in percentages. This differential is mainly attributed to increase in government credit balances with the banking system.

Similarly, increase in external debt contributed Rs.73 billion in public debt. Revaluation gain on account of appreciation of US dollar against other foreign currencies reduced the impact of net external inflows on external public debt portfolio.

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