Rs2.22tr to go into debt servicing

ISLAMABAD: Owing to already amassed huge public debt over the last several years, Pakistan will spend around Rs2.22 trillion on interest payments to the holders of national debt and retiring its principal amount during the financial year 2018/19, leaving less funds for economic and social development and children’s health and education.

The borrowing, which has been made over the last several years, is almost beyond the ability of this poor country to pay. This debt financing will be the major chunk of our country’s total budget outlay, as already the ballooning public debt has almost paralysed the economy, where more than half of the population is living below the poverty line.

It is the top category in Pakistan’s budgeted expenditures in FY2018/19, about more than two-fifth (or 42.3 percent) of the federal budget 2018/19 having total outlay of Rs5.246 trillion announced by Miftah Ismail, Federal Minister for Finance, Revenue and Economic Affairs, in the lower house of the parliament.

After recklessly piling up trillions of rupees public debt on the nation without sensing its negative fallouts, it will now face the brunt. Allocation for public debt servicing is far more than planned expenditures.

During the budget year 2018-19, on foreign debt servicing (interest payment), the country will spend Rs229.2 billion, while on foreign loan repayment (or principal amount) Rs601.75 billion will be spent. On the domestic debt servicing, the economy will consume Rs1.620 trillion.

During the outgoing fiscal 2017/18, revised estimates, on public debt servicing (paying interest and principal amount), the government has spent huge amount of 1.954 trillion rupees against the budgeted Rs1.649 trillion in the last budget 2017/18.

Economists believe that worse is 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 that pressure on foreign exchange reserves will mount with huge debt service requirement in the coming months. Deteriorating trade balance and high budget deficit may be the most serious risk in the months ahead.

The public debt of an economy increases when it 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.