Govt lists expenses of Rs41.3tr at NA

Are considered charged expenditures in which NA does not have right to vote

ISLAMABAD:

Pakistan’s debt repayment requirements and interest costs have surged by nearly half to Rs40.6 trillion in the next fiscal year alone, according to a summary of the spending bill presented by the government before the National Assembly (NA) on Tuesday, seeking its endorsement.

The financing needs for repaying maturing debt, interest costs, and funding the next fiscal year’s budget deficit have increased at a time when the currency is under stress and interest rates are at a record high of 21%.

The Ministry of Finance has presented a list of expenditures in the NA totalling Rs41.3 trillion, including expenses of Rs700 billion for subjects other than debt, for the fiscal year 2023-24, starting from July 1st.

The Pakistani government does not repay principal loans from its budget but instead contracts more debt to repay maturing loans. This is also a reason why debt-related expenditures are almost three times the size of next fiscal year’s budget.

The amount of Rs40.6 trillion sought for the repayment of principal loans and debt servicing is higher by Rs13.1 trillion, or 48%, compared to the original budget approved for such expenses in June last year, according to the documents.

Under the constitution, these expenses are considered as charged expenditures in which the NA does not have the right to vote. Additionally, the government has presented the details of charged expenditures for other state organs, and their details show that nobody cares that the country is nearing default.

Around Rs700 billion has been sought to meet the obligatory expenditures of the NA, the Senate, Election Commission of Pakistan, the Supreme Court of Pakistan, president of Pakistan, Islamabad High Court, Federal Tax Ombudsman, Pakistan Post Office, Federal Ombudsman Secretariat for Protection against Harassment of Women, and the Foreign Office.

Except for the Rs7.24 trillion cost of interest on debt, which will be part of the federal budget, the rest of the amount will not be booked in the budget and will be directly borrowed from domestic and foreign markets to repay loans obtained in the past by previous governments.

Interest payments on domestic and foreign loans will consume roughly 50% of the proposed budget of Rs14.5 trillion for the next fiscal year.

Compared to the original borrowing plan of Rs19.6 trillion for the outgoing fiscal year, the government has sought the NA’s endorsement for Rs28.9 trillion to repay maturing domestic debt in the next fiscal year. This amount is higher by Rs9.2 trillion or 46% compared to the original allocation for this fiscal year.

A recent biannual debt report by the Debt Management Office of the finance ministry stated that the floating rate domestic debt was Rs22.5 trillion or 68% of domestic debt as of December last year. The high ratio of floating debt is harmful due to the record-high interest rates of 21%.

The finance ministry report also showed that the average time of maturity for domestic loans was reduced from four years to three and a half years in one year. This is riskier and will keep the country dependent on commercial banks to exploit the situation.

The government has also requested Rs6.43 trillion for domestic debt servicing, which is 87% or Rs3 trillion higher than the outgoing fiscal year. The increase in the key interest rate is a major cause behind the surge in debt servicing costs, in addition to the ballooning budget deficit.

To repay foreign loans, the government has sought a record Rs4.4 trillion for the new fiscal year, which will be obtained from foreign lenders. The need for foreign loan repayment is up by 16%, or Rs606 billion. A key reason for the surge in foreign debt repayment is currency devaluation, as now more rupees are required to pay the same amount of dollar-based debt.

Pakistan’s major debt sustainability indicators have deteriorated significantly during the first half of this fiscal year, amid steep currency devaluation and interest rate hikes. The share of external debt in the total public debt has already risen to 37.2% by December, increasing currency risks along with the sinking rupee and foreign countries hesitating to extend loans.

The government has requested an additional Rs872 billion to pay interest on foreign loans, which is higher by Rs361 billion, or 70%.

The government has also requested Rs47 billion from the NA to repay short-term foreign loans, which is down by 67%, or Rs97 billion.

There has also been a significant increase in the expenses of the NA, the Senate, and the president of Pakistan. For the staff, household, and allowances of the president, the government has requested Rs1.4 billion, which is 33.5% or Rs353 million higher than the outgoing fiscal year.

Both the NA and Senate will receive an increase in their allocations compared to the original budget for the current year. The government has requested Rs5 billion for the NA, up by Rs2.3 billion, or 85%. The Senate will receive Rs3.3 billion, higher by Rs900 million, or 37.5%.

It seems that the country’s elite ruling class does not care about the deteriorating economic conditions, which may lead to sovereign default if the situation is not addressed.

The government has requested Rs3.6 billion for charged expenditures of the Supreme Court, which is higher by Rs500 million, or 16%. The Islamabad High Court will receive Rs1.54 billion, higher by Rs440 million, or 40%.

 

Published in The Express Tribune, June 21^st, 2023.

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