Mark-up on debts costs exchequer dearly

The mark-up on domestic debt stock as well as external loans taken since 2013 cost the kitty around Rs3.7 trillion during last three years, according to an official document of the Finance Division on debt. According to the brief of Debt Policy Co-ordination Office of Finance Division, a copy of which is available with Business Recorder, the mark-up on domestic debt stock cost the government Rs3.4 trillion during the last three years, besides $2.74 billion debt servicing on external loans taken by the present government since 2013-16.
The government paid a mark-up of Rs1,072.813 billion on domestic debt stock in 2013-14, followed by Rs1,206 billion in 2014-15 and Rs1,150 billion mark-up on domestic borrowing in 2014-15. The net domestic borrowing as per Finance Division's brief was R876.9 billion during 2013-14, Rs1,258.19 billion in 2014-15 and Rs979 billion in 2015-16.
The Finance Division noted that on the domestic front, total net domestic borrowings obtained since 2013 stood at Rs3,114 billion. The domestic debt, the finance Division further stated, is perpetual in nature and is constantly refinanced through new issues. Thus, to consider domestic debt maturing in near future as posing any risk of default as a sovereign owes these debts in the local currency would not be accurate. The government conducts three auctions in the domestic market per month, one for investment bonds of various maturities (3 years or more) and two auctions for treasury bills (of maturities of 3 to 6 and 12 months). The participation in each auction ranges from Rs100 billion to Rs500 billion and accordingly government refinances, its domestic debt from domestic market has a standard practice prevailing in all jurisdictions having competitive debt markets, the Finance Division maintained.
The domestic market (both primary and secondary) are very well developed and established in Pakistan and as such the government does not feel any cause of concern with regard to refinancing its domestic debt. Finance Division claimed in the brief the yield curve of short-term and long-term debt have both been declining steadily for the past one year and the yield curve is flattening across the maturity profile which again is a sign of stability. Further, interest payments on domestic debt as percentage of GOP are moderate at around 4%.Total mark-up paid on domestic loans portfolio since 2013 stood at Rs3,431 billion.
The government's main objective of the foreign borrowing since 2013-14 has been to supplement the domestic resources. The external loans are mainly obtained from multilateral sources for balance of payment support, reducing domestic borrowing and fulfilling the foreign obligations. Moreover, Finance Division stated the external inflows, altogether, provided stability to rupee exchange rate with other currencies and an opportunity for accelerated economic growth.