Debt repayment, servicing alone to swallow Rs2.2tr

Pressure to mount on foreign currency reserves due to growing debt pile

ISLAMABAD: The federal government has projected that it will spend Rs2.2 trillion on public debt retirement in the upcoming fiscal year 2018-19 including foreign loan repayments and payment of interest on the huge debt pile.

It had estimated spending of Rs1.64 trillion on retiring and servicing the public debt in the outgoing financial year 2017-18, but actual expenditure jumped up to Rs1.95 trillion.

Total outlay for the FY19 budget is estimated at Rs5.932 trillion including foreign loans and grants, which is 16.2% higher than the FY18 estimate. Of this, current expenditure is projected at Rs4.780 trillion and development expenditure at Rs1.152 trillion.



Of the total expenditure, the government will spend Rs1.62 trillion on mark-up payment on the public debt. Out of that, Rs1.39 trillion will be spent on mark-up on domestic debt whereas Rs229.23 billion will be utilised to pay mark-up on foreign debt.

From the current expenditure, the government will spend Rs601.75 billion on repaying foreign loans in the next fiscal year.

For the outgoing year, an amount of Rs1.64 trillion had been earmarked to pay the debt and mark-up on foreign and domestic loans, but the target was later revised upwards to Rs1.95 trillion following increase in government borrowing.

Economists believe that pressure will mount on the already shrinking foreign currency reserves with the huge debt servicing requirement in future in order to repay the debt taken for China-Pakistan Economic Corridor (CPEC) projects.

They point out that the government will be seeking more foreign loans to pay off the public debt, but the national economy will not be able to bear the burden of the swelling debt pile.



Economic assistance

According to budget documents, external receipts for 2018-19 have been projected at Rs1.118 trillion, up 33.4% from the budget estimate of 2017-18.

The government had anticipated a flow of Rs837.8 billion in such receipts in the outgoing financial year, but now according to revised estimates it expected the receipt of Rs1.229 trillion because of increase in loans taken from commercial banks.

According to the budget books for FY18, Rs799.92 billion was expected to be received in external loans which included project and programme financing, but now it has been revised upwards to Rs1.182 trillion.



For the next fiscal year, a flow of Rs1.080 trillion is expected on account of external loans.

From the Islamic Development Bank, the government had estimated to receive Rs163.5 billion in the outgoing year, but now it is hoping to get Rs140.06 billion according to revised estimates. For the next year, the government has targeted to receive Rs117 billion from the bank.

In the outgoing year, Rs105.5 billion was expected to be raised through the issuance of Sukuk (Islamic bond), but later the figure was revised upwards to Rs274.35 billion. Next year, an amount of Rs234 billon is expected to be borrowed through bond float.

The government had budgeted to borrow Rs105.5 billion from commercial banks in the outgoing year, but the amount swelled to Rs406.29 billion according to revised estimates. Target for next year has been fixed at Rs351 billion.

Published in The Express Tribune, April 28^th, 2018.

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