Printer Friendly

Govt's debt surges to Pkr 27.6tr by Feb-end.

The federal government's debt has soared to Rs27.6 trillion with a net addition of Rs3.4 trillion in just eight months at a pace of nearly 14percent due to low tax revenue, high expenditure and currency depreciation.

From July through February 2018-19, the government on an average added Rs14 billion a day to its debt, which included almost six and a half months of Pakistan Tehreek-e-Insaf (PTI) government, according to the State Bank of Pakistan's (SBP) statistics.

There was a net addition of Rs3.4 trillion from July to February, which was higher by 13.9percent when compared with June 2018 statistics.

The accumulation of debt is the direct result of the gap between expenditures and revenues, which is widening due to the inelasticity in debt servicing and defence needs and the Federal Board of Revenue's (FBR) failure to enhance revenue collection.

In first nine months of the current fiscal year, the FBR suffered a shortfall of Rs318 billion in revenue collection.

The FBR's tax collection grew at a pace of 2.4percent in the nine months, which was even lower than the nominal gross domestic product (GDP) growth of nearly 12percent.

Government estimates show that nearly 69percent of the total budget will go to debt servicing and defence purposes, which is higher than net revenues of the federal government. Due to this trend, the International Monetary Fund has proposed to target primary budget balance, which means that current expenditures, excluding debt servicing, should not be more than the revenues.

The overall increase in the central government debt seems not to be in line with the budget deficit requirements due to currency depreciation. An increase in interest rate by the State Bank of Pakistan (SBP) has also added at least Rs500 billion to the cost of debt servicing.

"The cost of debt servicing in the current fiscal year will be over Rs2 trillion after the recent hike in interest rate," said Finance Minister Asad Umar on Tuesday during an interaction with journalists.

The minister said there were no chances of a sharp reduction in debt as a percentage of gross domestic product (GDP) and it would gradually come down. Over the next five years, the debt would still remain above the statutory limit of 60percent of GDP, he said.

The central bank raised the key interest rate by another 50 basis points to 10.75percent last week despite a decline in core inflation for the first time in 13 months. This puts a question mark over the SBP's strategy.

The external debt of the central government increased 18.42percent to Rs9.23 trillion in first eight months of the current fiscal year. There was a net increase of Rs1.44 trillion in the external debt, largely due to currency depreciation.

In June 2018, the value of a dollar was equal to Rs121.54, which reached Rs139.055 by the end of February, according to the central bank. Since then, the rupee has further shed its value and was traded at Rs141.20 in the inter-bank market on Friday.

COPYRIGHT 2019 Knowledge Bylanes
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2019 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Publication:Pakistan & Gulf Economist
Date:Apr 14, 2019
Words:571
Previous Article:Subsidy burden put on energy distribution companies.
Next Article:Government mulling 75percent rebate for benami asset holders.
Topics:

Terms of use | Privacy policy | Copyright © 2021 Farlex, Inc. | Feedback | For webmasters