Foreign, domestic debt repayments to slice more than half of budget outlay

ISLAMABAD: Foreign and domestic debt repayments will eat up more than half of the budget outlay during the next fiscal year, an official document showed on Tuesday, giving the struggling economy run for money to spend on development amid economic slowdown.

The country will expend Rs359.764 billion on foreign debt servicing (interest payments), staggering Rs1.095 trillion on repayments of principal amounts of foreign loans, and Rs2.532 trillion on domestic debt servicing during the next fiscal year of 2019/20, a budget document showed.

The foreign and domestic debt repayments will come up as the top category in the country’s budgeted expenditures in FY2019/20, accounting for 56.65 percent of the federal budget outlay of Rs7.036 trillion announced by the Minister of State for Revenue Hammad Azhar in the lower house of the parliament.

The government spent huge amount of Rs2.916 trillion on public debt servicing – payments of interest and principal amount -- during the outgoing 2018/19 year as against the budgeted Rs2.222 trillion.

The borrowing, which has been made over the last several years, is almost beyond the ability of the poor country to pay. Ballooning public debt has almost paralysed the economy where more than half of the population is living below poverty line.

“Worst is yet to come,” an economist said, requesting anonymity. “After recklessly piling up trillions of rupees in public debts without sensing negative fallouts, the economy will now face the brunt.”

The economists said payment of huge amount on debt servicing is impossible without more loans, painful austerity and depletion of foreign exchange reserves. The government borrowed $9.2 billion from friendly countries for foreign exchange reserves support during the first nine months of the last fiscal year.

The allocated amount for debt servicing in the budget is much more than the expenditures on health and education sectors.

The economists said pressure on foreign exchange reserves would further mount with huge debt service requirement in the coming months. Deteriorating trade balance and high budget deficits would be the most serious risks in the months ahead.

“Public debt of an economy increases when it is unable to meet its expenditures through own resources and it borrows more from local and foreign lenders to bridge the fiscal gap,” the economist said.

The document showed that domestic and external public debt and liabilities were recorded at worrisome Rs35.0954 trillion till March-end of 2019, which has more than doubled from Rs16.338 trillion in 2013.

“If today, Pakistan decides to retire all its public debts, then it has to forego 91 percent of its gross domestic product,” an analyst said. Presently, the country’s GDP volume is at Rs38.558 trillion.

The present debt figures also show that the government violated the Fiscal Responsibility and Debt Limitation Act, which calls for keeping debt-to-GDP ratio below 60 percent.

Analysts said each Pakistani – man, woman, child – is currently indebted with Rs164,922, which is several times more than what the government spends on health and children education.

Till March-end, current external debt and liabilities stand at $105.8 billion. Of that, external public debt amounted to $74.2 billion. Debt is increasing in rupees terms with rupee devaluation. The rupee has been held at around 105 to a US dollar between late 2015 and December 2017, but it fell to more than Rs150 after the central bank let the rupee devalue.