The government will roll over Rs8.4 trillion in domestic debt in the next fiscal year following its inability to retire the growing debt that will result in violation of the Fiscal Responsibility and Debt Limitation Act in the next fiscal as well.
Finance Minister Ishaq Dar on Friday tabled the details of obligatory expenditures amounting to Rs10.15 trillion in the National Assembly for the new fiscal year 2015-16, beginning from July 1. Parliament does not have the authority to cut the obligatory expenses, known as charged expenditures on the federal consolidated fund.
The bulk of the domestic debt that the government intends to roll over in the new fiscal year was obtained by the successive governments. Due to limited size of the federal purse, the government will not be in a position to return these loans, resulting in the rollover of Rs8.4 trillion in domestic debts.
The government has also contracted fresh loans in the outgoing fiscal year, which has increased the size of the overall domestic debt to roughly Rs12 trillion.
The rollover of Rs8.4 trillion debts would increase the cost of debt servicing that has become the single largest expense on the budget.
Under the Fiscal Responsibility and Debt Limitation Act, there is a legal obligation on the federal government to keep the size of the total debt to 60% of the Gross Domestic Product.
However, due to growing gap between expenses, income and the government’s inability to retire the debt, the debt-to-GDP ratio remained at 62.9% in the outgoing fiscal year. In the next fiscal year, this ratio is again expected to remain above the statutory limit of 60% of the GDP.
“When the government came into power, the country was facing the imminent threat to default on international debt payments,” said Ishaq Dar while blaming the PPP for large size of debt. The incumbent government’s first priority was to avoid default and then stabilise the economy and it has successfully achieved both the target, he added.
In the new fiscal year the cost of domestic debt servicing is estimated at Rs1.17 trillion, thanks to lowering interest rates that saved billions of rupees.
Dar said loans worth Rs316.3 billion would be repaid next year while another Rs89.4 billion would be consumed to repay short-term foreign credit, mainly obtained from the Islamic Development Bank for crude oil imports.
For servicing of foreign debt, the government has estimated Rs111.2 billion expenses, he stated. The finance minister said in the last five years $8.5 billion foreign loans were signed that had to be returned by his government.
He complained that while during general discussion on budget the members of the National Assembly criticised increase in debt but they did not consider the circumstances that led to increase in debt.
The government has estimated Rs3.6 billion charged expenditures for paying allowances and pensions. Another obligatory expense of Rs10.8 billion is estimated on meeting miscellaneous needs of the federal and the provincial governments.
For staff, household and allowances of the president Rs801 million will be spent in the new fiscal year. The audit department will be given Rs3.6 billion and Rs2.2 billion will be given to the Election Commission of Pakistan.
Published in The Express Tribune, June 19th, 2015.