KARACHI: The country's outstanding domestic debt registered a healthy growth of over 17 percent to hit Rs 5.4 trillion mark by the end of March 2011. Sources said widening fiscal deficit and delay in transfer of funds from international financial institutions forced the federal government to enhance its reliance on domestic sources to generate more funds to meet rising expenditures.
The International Monetary Fund has already stopped its tranche of Stand-by Arrangement (SBA), and millions of dollars payment of Coalition Support Fund is also stuck. According to the State Bank of Pakistan, the impact of a widening fiscal deficit and the government's heavy reliance on domestic sources for its financing is clearly visible in terms of the sharp increase in domestic debt.
Outstanding domestic debt, which was less than Rs 5 trillion at end of FY10, has reached Rs 5.463 trillion by end-Mar 2011, up by Rs 809 billion since June 30, 2010. Outstanding domestic debt stood at Rs 4.654 trillion at the end of FY10. The statistic indicated a monthly rise of Rs 90 billion in domestic debt in the first three quarters of the last fiscal year. The outstanding domestic debt has also mounted to 30.2 percent of estimated GDP for FY11.
The State Bank in its third quarterly report on state of economy has also shown serious concern over the rising domestic debts stocks saying that growing stock of domestic debts is fuelling concerns about government debt management and macroeconomic stability and some of the key issues related to domestic debt management are summarised in some risks ie Rollover Risk and Interest Risk.
According to SBP an analysis of the composition of domestic debt reveals that the share of floating debt (maturing within a year) in total outstanding domestic debt reached 52.2 percent by end-Mar 2011. This current increase in the floating debt implies that the government must roll over the entire floating debt stock of Rs 2.854 billion at least once a year.
"A surge in credit demand from other sectors of the economy, or reduction in liquidity in the banking system can play a role in intensifying the rollover risk," the repot said. In addition to rollover risk, the government is also exposed to significant interest rate risk. Specifically, the entire stock of floating debt will be re-priced at least once a year.
The SBP has also estimated that an increase of 100 bps in the average interest rate on T-bills will push up interest payments by Rs 28.5 billion. While the government is increasing its exposure to short term debt, it continues to borrow through the unfunded debt (National Savings Scheme), which had risen to Rs 1.6 trillion by end-Mar 2011. According to SBP unfunded debt witnessed a net inflow of Rs 142 billion during July-March 2011.