Debt burden mounts as interest payments soar to Rs7.3tr

Increasing debt servicing costs raise concerns about fiscal stability, long-term financial health

ISLAMABAD:

Pakistan is set to face a massive burden of Rs7.3 trillion in the next fiscal year, as interest payments on domestic and foreign debt continue to rise. The government had initially budgeted Rs3.9 trillion to cover markup on loans for the ongoing fiscal year 2022-23. However, revised estimates show that the spending on interest payments surged to Rs5.52 trillion.

The budget allocated Rs3.43 trillion for interest payments on domestic debt, but the revised figures reveal that the actual amount reached Rs4.7 trillion. Similarly, the government had initially planned to spend Rs510.9 billion on interest payments for foreign debt, but this figure escalated to Rs7725.3 billion.

Economists warn that the increasing debt servicing costs will put additional pressure on Pakistan’s foreign currency reserves. The interest payments for the fiscal year 2023-24 are projected to reach Rs7.3 trillion, with Rs6.43 trillion allocated for domestic debt and Rs872.25 billion for foreign debt.

The government anticipates external loans of Rs6.8 trillion for the next fiscal year. Of this, Rs52.4 billion is projected to come from project loans, while Rs771.3 billion is expected through programme loans. In the outgoing financial year, Pakistan had expected to receive Rs5.5 trillion in external loans, but the revised estimates indicate a lower inflow of Rs3.2 trillion.

While the government had initially projected project loans of Rs 266.5 billion and programme loans of Rs1.2 trillion for the ongoing financial year, the revised figures show revised expectations of Rs400.2 billion for project loans and Rs856.4 billion for programme loans. IMF loans for budgetary support were estimated at Rs558 billion for the fiscal year 2022-23, but the government now expects to receive Rs172.4 billion according to revised estimates. For the next financial year, Pakistan is hopeful of receiving Rs696 billion in IMF loans.

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However, the country’s hopes of receiving an oil facility on deferred oil payment from Saudi Arabia have diminished. Initially, Pakistan had projected to receive Rs148.8 billion in the ongoing financial year, but revised estimates show an expectation of Rs194.788 billion. Furthermore, no such facility is anticipated in the next financial year. On the other hand, Pakistan expects to receive Rs588 billion through the ECO oil facility.

From the Islamic Development Bank, Pakistan had estimated receipts of Rs223.2 billion for the outgoing year, but the actual amount received was Rs232.2 billion. For the next financial year, the government expects to receive Rs145 billion. Additionally, Pakistan hopes to secure Rs580 billion in new deposits from Saudi Arabia and Rs290 billion from the UAE.

To meet its financial requirements, the government plans to raise Rs435 billion through the issuance of Sukuk (Islamic bonds) and Eurobond in the next fiscal year. However, the government did not receive any funds from Sukuk issuance as per the revised estimates. Furthermore, while the government expected to generate Rs1,305 billion from commercial banks, it only received Rs521.6 billion in the ongoing financial year.

A significant portion of Rs1,160 billion is expected to be obtained through the SAFE China deposit in the next fiscal year.

Published in The Express Tribune, June 10^th, 2023.

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