The rising fiscal deficit, followed by high current expenditures and shortfall in revenue, has resulted in healthy growth in borrowing from domestic sources. Because of these factors the country's total stocks of domestic debt crossed Rs 6 trillion mark at the end of fiscal year 2010-11 for the first time in the history of Pakistan.
The State Bank of Pakistan (SBP) said that the country's overall stocks of domestic debts, comprising permanent debt, floating debt, un-funded debt and foreign currency loan, registered a cumulative growth of 29.22 percent during the last fiscal year 2010-11 (FY11) as compared to FY10. The stock of domestic debt shot up by Rs 1.360 trillion to new peak level of Rs 6.143 trillion as on June 30, 2011 as compared to Rs 4.654 trillion on June 30, 2010.
The second quarter of last fiscal year witnessed massive increase in the domestic debt, and during the first half of (July-December) of FY11 the rise in stocks of domestic debt was just 12 percent or Rs 603 billion. Similarly, the country's overall stocks of domestic debts and liabilities posted an increase of 27 percent or Rs 1.334 trillion to Rs 6.228 trillion at end of FY11 from Rs 4.894 trillion in FY10.
Detailed analysis indicated that major increase was witnessed in the domestic debt, while domestic liabilities posted some decline. During the last fiscal year, after a decrease of 12 percent or Rs 26.4 billion, the total government's domestic liabilities declined to Rs 214.2 billion in June this year from Rs 240.6 billion in June 2010.
Economists said that higher fiscal deficit and shortfall in revenue were the chief reasons of expansion in domestic outstanding during the last fiscal year. They said that rising fiscal deficit was largely contributed by rising security, subsidies and current expenditure, beside less than target revenue collocation.
When the International Monetary Fund (IMF) and other international financial institutions stopped loaning to Pakistan, the government had only one option of borrowing, which is domestic banking sources, they added. Category-wise analysis sowed that tremendous rise in debt stocks was driven by the healthy growth in the floating debt, which went up by 35 percent during the period under review. The floating debt includes three months' treasury bills, market treasury bills and MTBs for replenishment of cash.
Overall floating debts reached Rs 3.235 trillion mark in June 2011 as against Rs 2.399 trillion in June 2010, depicting an increase of some Rs 836 billion during the last fiscal year. In addition, permanent debts, which include market loan, federal government bonds, income tax bonds, prize bonds, etc, surged by 42 percent or Rs 330.1 billion during FY11.
With current increase it has crossed Rs one trillion mark to Rs 1.124 trillion at the end of FY11 compared with Rs 794.3 billion in FY10. Similarly, with an increase of 13.42 percent or Rs 195.6 billion, unfunded debt, comprising national saving, postal life insurance and GP fund, mounted to Rs 1.653 trillion. Earlier it stood at Rs 1.457 trillion at the end of fiscal year 2010. Debt under foreign currency loan posted a healthy decline of 55 percent or Rs 1.7 billion to Rs 1.4 billion from Rs 3.1 billion.
The central bank has asked government to reduce its rising expenditures. The State Bank also expressed serious concern over the rising government budgetary borrowing from it and has adopted a tight monetary policy to curb the increasing inflation. Therefore, the federal government has enhanced its borrowing from other domestic sources like long term papers and saving schemes.