The federal government's domestic debt and liabilities continue to rise on the back of massive borrowing for reducing fiscal deficit, reaching Rs 11 trillion at the end of last fiscal year (FY14). According to State Bank of Pakistan (SBP), the government's overall stocks of domestic debt and liabilities, comprising permanent debt, floating debt, unfunded debt and foreign currency loans, posted an increase of 14 percent during FY14.
Overall, stocks of domestic debt and liabilities surged to highest-ever level of Rs 11.166 trillion at the end of June 2014 compared to Rs 9.765 trillion in June 2013, depicting an increase of Rs 1.4 trillion. "Higher borrowing from domestic banking system reflects that fiscal measures taken by the PML-N government are not successful as per expectations and the government is still dependent on domestic banking system to fulfil its financial obligations," economists said.
Contrary to slow revenue growth, the government's spending on account of security and energy subsidies witnessed a massive increase during the last fiscal year, they added. The federal government received billions of dollars foreign inflows on account of Eurobond, Coalition Support Fund, the International Monetary Fund loan, aid from a neighbouring Muslim country and privatisation proceeds during the last fiscal year. However despite over $6 billion additional foreign inflows, the stocks of domestic debt and liabilities reached a new high level mainly due to higher fiscal deficit, shortfall in tax revenue collection and subsidies to power sector, they added.
They said a major shift of debt from short term to long term papers has also been witnessed during the period under review as the government borrowed the entire amount through auction of Pakistan Investment Bonds (PIBs). According to SBP, domestic debt witnessed an increase of 14 percent during the last fiscal year. With current increase, overall stocks of the domestic debt mounted to all-time high of Rs 10.896 trillion in June 2014 compared to Rs 9.521 trillion in June 2013, depicting an increase of Rs 1.375 trillion.
During the period under review, the government's total domestic liabilities inched up by 11 percent or Rs 26.3 billion to Rs 270 billion. Category-wise analysis revealed that a tremendous rise in debt stocks has been driven by a healthy growth in the permanent debts, which rose by 84 percent during the period under review.
According to SBP permanent debt, which includes federal government bonds like Ijara Sukuk and PIBs, is a key instrument for government borrowing. Overall stocks of permanent debts reached Rs 3.99 trillion in June 2014 up from Rs 2.174 trillion in June 2013, depicting an increase of Rs 1.82 trillion.
Similarly, with an increase of Rs 147 billion, unfunded debt stood at Rs 2.294 trillion. Unfunded debt includes national saving, postal life insurance and GP Fund. Floating debt, which includes Market Treasury Bills, posted a decline of Rs 596 billion to Rs 4.60 trillion down from Rs 5.195 trillion. Debt under foreign currency loan remained stable at Rs 4.5 billion at the end of FY14.
"We are expecting more growth in the domestic debt in coming days as the government seems to have failed to implement long-term tax reform to increase the tax revenue," economists said. This year the government has planned privatisation of OGDL and PPL to generate funds, while the auction for over $1 billion denominated Sukuk in the international market is also on the cards, they added.
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