Interest payment: government exceeds estimated expenditure by Rs 52.86 billion

The government has exceeded estimated expenditure on account of interest payment by Rs 52.86 billion for the ongoing fiscal year for borrowing excessive to budgetary allocation to finance the budget deficit. The interest payment for the current fiscal year has been revised upward to Rs 843.839 billion from Rs 790.977 estimated in the budget, according to budget documents for 2012-13.
Analysis of the documents show that interest payment estimated at Rs 714.671 billion on domestic debt for the current fiscal year has been revised upward to Rs 771.873 billion in the wake of massive borrowing to finance the fiscal deficit projected at 5.5 percent against revised estimate of 4.7 percent.
The government borrowing from the banking system has reportedly crossed Rs 1 trillion for the current fiscal year against estimated Rs 304 billion in the budget. An official said this does not include Rs 391 billion borrowing for consolidation of electricity arrears that amount to 1.9 percent of the GDP.
The inclusion of Rs 391 billion for clearance of electricity arrears would escalate the government's total borrowing from the banking system over Rs 1.4 trillion for the current fiscal year. An official of the Finance Ministry said a number of inflows estimated for the current fiscal year did not materialise and consequently the government reliance on banking system to finance the budget led to an increase in interest payment.
The budget documents revealed that interest payment on foreign debt estimated at Rs 76.306 billion has been revised downward to Rs 71.967 billion for the current fiscal year. The government's heavy reliance on the domestic borrowing was also evident during the last fiscal year from the increase in interest payment which was revised upward to Rs 653.628 billion from budgetary projection of Rs 621.759 billion for 2010-11.
Analysts blame excessive borrowing by the government to the budgetary projection has been fuelling inflation and crowding out private sector. According to the Economic Survey, low tax to GDP ratio and increasing public debt stock which is due to the government borrowing to finance the yawning budget deficit, has imposed constraint on the size of fiscal stimulus to support revival the growth momentum needed for the economy.
Analysts say that high fiscal deficit and spiking inflation in the face of low growth is a major challenge for the economy and would continue to remain unless serious efforts are not made on the part of the government to mobilise revenue and rationalise current expenditure to contain the fiscal deficit.