The rising fiscal deficit has resulted in massive increase in borrowing from domestic sources, of which the country's total stocks of domestic debt and liabilities reached an all-time high of Rs 5.49 trillion at end-December 2010.
The State Bank of Pakistan (SBP) on Tuesday revealed that the country's overall stocks of domestic debt and liabilities, comprising permanent debt, floating debt, un-funded debt and foreign currency loan, had registered a cumulative growth of 12 percent during the first half of (July-December) of current fiscal year 2010-11.
The stock of domestic debts and liabilities have shot up by Rs 603 billion to new peak of Rs 5.497 trillion as on December 31, 2010 as compared to Rs 4.894 trillion as on June 30, 2010. The rise in stocks of domestic debt and liabilities was just 6 percent or Rs 297 billion in first quarter (July-September) of fiscal year 2010-11.
Sector-wise analysis indicated that major increase was witnessed in the domestic debt, while domestic liabilities have posted some decline. During the first half of current fiscal year, cumulatively domestic debt rose by 13.75 percent or Rs 640 billion to Rs 5.294 trillion. While, after a decrease of 16 percent or Rs 38 billion government domestic liabilities have declined to Rs 202 billion in December 2010.
"Higher fiscal deficit, slow privatisation process and foreign inflows have largely contributed to expansion of domestic outstanding during the current fiscal year," economists said. They said that rising defence expenditures and less than target revenue collection are chief reasons for fiscal deficit and high government borrowing. They said at present the government has only one option of borrowing, which is domestic sources, as the IMF has already stopped payment under stand by arrangement (SBA) since last eight months.
Therefore, on domestic front the government is also increasing its borrowing from the saving schemes to meet its rising expenditures and in future lending from saving schemes is likely to surge more. To attract more investment under this head the federal government in December 2010 announced a healthy increase in NSSs rates of national saving schemes, they added.
"Due to rising current expenditure, the government has already indicated that it would fail to meet the IMF target of fiscal deficit and borrowing from the SBP," they said. This tremendous rise in debt stock has been driven by the healthy growth in the floating debt category, which went up by 19.17 percent during July-December 2010. The floating debt includes three months' Treasury Bills, Market Treasury Bills for replenishment of cash.
Overall floating debts reached Rs 2.859 trillion in December 2010 against Rs 2.399 trillion in June 2010, depicting an increase of some Rs 460 billion during the first half of fiscal year 2010-11. In addition, permanent debts, which include market loan, federal government bonds, income tax bonds, prize bonds, etc, have surged by 14.51 percent or Rs 115 billion to Rs 909 billion at end of first half as compared to Rs 794.3 billion in June 2010.
Similarly, with an increase of 4.59 percent or Rs 67 billion, un-funded debt comprising national saving, postal life insurance and GP Fund mounted to Rs 1.524 trillion at end of first half. Earlier it stood at Rs 1.457 trillion at end of last fiscal year 2010. Debt under foreign currency loan posted a healthy decline of 148 percent or Rs 1.5 billion to Rs 1.6 billion from Rs 3.1 billion.
The central bank has already asked the government to reduce its rising expenditure. The State Bank has also expressed serious concern over the rising government budgetary borrowings from it and has adopted a tight monetary policy to curb increasing inflation. However, the government budgetary borrowing is uncontrolled, and the IMF has stopped tranches under Stand By Arrangement (SBA).
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