The debt servicing and repayments casting Pakistan heavily as 40% federal budget will be spent for this purpose in the next financial year. The allocation for debt servicing is on the rise. The reason is simple. Our appetite for foreign loans is increasing at fast pace. We even obtain fresh loans to repay the old loans. The ever increasing foreign loans are bleeding Pakistan’s economy as larger amount of the budget has been allocated to the foreign debt servicing.
Pakistan has pile up a huge mountain of debt. So there is no option left for Pakistan to increase the allocation for retiring the principal amount and interest on debts. After allocating huge amount for debt servicing, defence and administrative expenditures, the government left with no other option but to allocate less funds for economic and social development and children’s health and education.
The borrowing, which has been made over the last several years, is almost beyond the ability of this poor country to pay. The present PML-N government borrowed 35 billion dollars in just 5 years. The $17 billion out of $ 35billion were borrowed to repay the old debts. This debt financing will be the major chunk of our country’s total budget outlay, as already the ballooning public debt has almost paralysed the economy, where more than half of the population is living below the poverty line.
After recklessly piling up trillions of rupees public debt on the nation without sensing its negative fallouts, it will now face the brunt. Allocation for public debt servicing is far more than planned expenditures.
The federal government will spend Rs2200 billion (Rs2.2 trillion) on public debt retirement in the upcoming fiscal year 2018-19 including foreign loan repayments and payment of interest on the huge debt pile.
It had estimated spending of Rs1.64 trillion on retiring and servicing the public debt in the outgoing financial year 2017-18, but actual expenditure jumped up to Rs1.95 trillion.
Total outlay for the FY19 budget is estimated at Rs5.932 trillion including foreign loans and grants, which is 16.2% higher than the FY18 estimate. Of this, current expenditure is projected at Rs4.780 trillion and development expenditure at Rs1.152 trillion.
For the outgoing year, an amount of Rs1.64 trillion had been earmarked to pay the debt and mark-up on foreign and domestic loans, but the target was later revised upwards to Rs1.95 trillion following increase in government borrowing.
Economists believe that worse is to come, as paying this huge amount is impossible without more loans, sharp austerity or running down the country’s already depleted reserves. Every country takes loans from different creditors to fill the gap in the finances. The strong economies can coop with rising debts but they also pay a price. The weaker economies likes of Pakistan pay even heavier price for accumulated debt.
They believe that pressure on foreign exchange reserves will mount with huge debt service requirement in the coming months. Widening trade balance and high budget deficit may be the most serious risk in the months ahead.
The public debt of an economy increases when it unable to meet its expenditures through own resources (tax and others) and to bridge the gap (that is called fiscal deficit), it borrows more from local and foreign lenders. This practice should be stopped.
It is important to reduce our dependence on loans and to develop our resources base. It is necessary to expand the tax base to achieve this goal and objective. It is easier to get loans and spend it on the non-developmental expenditures but it is difficult repay the interest and principal amount of these loans. Pakistan needs serious reforms and changes in the tax system to encourage the people to pay taxes.
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17 November, 2019