Islamabad: Amid reluctance to opt for debt restructuring, Pakistan’s interest expenses have shot up significantly to Rs 2.57 trillion during the first half of this fiscal year, which is equal to 65 percent of the annual debt servicing budget, and is forcing the government to cut out its other expenses except those on defence, according to a media report.
A source in the Ministry of Finance told The Express Tribune that during the July-December period of the current fiscal year, there was an alarming increase of 77 percent in the cost of interest on the federal government debt stock.
The fresh provisional details suggest that due to the precarious situation, there has been a cumulative reduction of 15 percent in all other non-development expenditures, excluding defence. The development expenses were slashed by 50 percent to create room for other expenses, according to a government source.
The finance ministry paid about Rs 2.57 trillion in interest costs, up by Rs 1.1 trillion or 77 percent, according to the source. For the current fiscal year, the government had budgeted Rs 3.95 trillion for interest expenses but 65 percent of it has been consumed in just six months.
Pakistan follows the July-June financial year.
Amid the high cost of debt servicing, the Monetary Policy Committee of the central bank is also scheduled to meet on Monday to review the possibility of further increasing its interest rate to contain inflation and attract foreign inflows.
Earlier this month, Finance Minister Ishaq Dar said that the cost of debt servicing may increase to nearly Rs 5 trillion in this fiscal year — more than half of this year’s total budget of Rs 9.6 trillion.
Despite the precarious situation, the finance ministry seems to be in no mood to appreciate the biggest challenge threatening the country’s long-term viability. There is an urgent need to restructure domestic debt to create some fiscal space, which can strengthen Pakistan’s case for foreign debt restructuring.
But the government has come up with yet another austerity committee as its solution to Pakistan’s “financial challenges”.
According to a source, excluding military pensions and expenses on the armed forces development program, Rs 638 billion was spent on defence in six months — Rs 118 billion or nearly 23 percent more than last year. The annual stated defence budget is Rs 1.563 trillion and the six-month spending is in line with the allocation.
With a net income of Rs 2.5 trillion, accumulative spending on debt servicing and defence jumped over Rs 3.2 trillion – 128 percent or Rs 708 billion more than the government’s net income — suggesting that Pakistan will remain debt trapped because even though tax collection has increased, expenses are not being curtailed.
After wasting about four months trying to secure cash injections from other nations, Pakistan has finally decided to try and revive the IMF program again.
Compared to the huge spending of Rs 3.2 trillion on debt servicing and defence, only Rs 147 billion was spent on development. The spending on development is Rs 141 billion or 49 percent less than that in the previous fiscal year.
PTI