KARACHI: The government paid 39 per cent of its tax revenue, or Rs832 billion, in debt servicing during the first eight months (July-February) of this fiscal year, the State Bank of Pakistan (SBP) said in its Monetary Compendium for April.
The amount was 1.1pc higher compared to the same period a year ago despite drastic fall in the interest rate.
The SBP’s benchmark interest rate, also called policy or target rate, has dropped from double digits to 6pc, much to the benefit of the government which raises billions from banks. The returns on Pakistan Investment Bonds (PIBs) and Market Treasury Bills (MTBs) have also fallen drastically.
During the recently auctioned PIBs, the rates were 6.54pc, 6.99pc and 8.18pc on three-, five- and 10-year tenors, respectively. The returns on T-bills are slightly higher than 6pc.
Finance Minister Ishaq Dar has said the borrowing was made to limit the fiscal deficit as under the International Monetary Fund (IMF) programme the government has to keep the deficit at 4.3pc of GDP.
During July-February FY16, the government paid the highest amount of Rs432bn for permanent debt, an increase of 2.8pc over the last year.
Top among the permanent debt is the PIBs. The government has raised up to Rs4.8 trillion through PIBs, and banks are still interested to invest in this paper despite fall in the interest rates.
PIBs offered the highest yields in FY14 and FY15 which resulted in increased debt servicing. The government paid Rs1.175 trillion as debt servicing in the preceding fiscal year.
The government paid Rs224bn as debt servicing for floating debt and Rs176bn as unfunded debt during the eight-month period under review.
According to the SBP’s compendium, the size of debt servicing during July-February FY16 was 29.9pc of the total revenue, 21.8pc of total expenditure and 26.5pc of current expenditure.
Since the revenue generation could not see any significant increase during the current fiscal year, it is believed that government borrowing would continue to rise. It will ultimately increase the size of debt servicing, hurting the development expenditure.