Pakistan Will Spend 41% of Total Budget on Debt Servicing in 2020-21

Pakistan will spend around Rs. 2.946 trillion on interest payments to the holders of National Debt and retiring its principal amounts during the financial year 2020/21. The debt servicing will eat up more than two-fifths of the country’s total budget outlay.

During the upcoming fiscal, the amount earmarked for debt servicing is around a trillion rupees less than outgoing fiscal’s revised estimate of Rs. 3.954 trillion.

Debt servicing is the top category in Pakistan’s budgeted expenditures in FY2020/21 which is about 41.28 percent of the federal budget total outlay of Rs. 7.136 trillion announced by the Minister for Industries and Production Hammad Azhar in the lower house of the parliament on Tuesday.

During the budget year 2020/21, on foreign debt servicing (interest payment), the country will expend Rs. 315.135 billion, while on foreign loan repayment (or principal amount), the government will spend no money (in outgoing fiscal it was Rs. 1.245 trillion).

On domestic debt servicing, the economy will consume Rs. 2.631 trillion.

During outgoing fiscal 2019/20, revised estimates, on public debt servicing (paying interest and principal amount), the government has spent a huge amount of 3.54 trillion rupees against budgeted Rs. 3.987 trillion.

The borrowing which has been made over the last several years is almost beyond the ability of this poor country to pay. This debt financing will be the major chunk of our country’s total budget expenditures outlay, as already the ballooning public debt has almost paralyzed the economy, where more than half of the population is living below the poverty line.

Economists believe that debt rescheduling will give a cushion to the country to cope with the COVID-19 that has been playing havoc with the economy, like the other day while launching the Economic Survey 2019/20, Advisor to Prime Minister on Finance Abdul Hafeez Shaikh said that since the coronavirus cases emerged in Pakistan, the economy has lost around Rs. 3 trillion so far.

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.

Current Public Debt Situation

Pakistan’s public debt and liabilities (domestic and external) have been recorded at a huge Rs 5.207 trillion by end-March 2020, increasing by two-and-a-half-time since 2013 when it was recorded at Rs14.29 trillion.

This total public debt is 84.38 percent of our Gross Domestic Product (GDP) which at present is Rs 1.72 trillion. With the huge borrowings, the country has violated the fiscal responsibility and debt limitation act (FRDLA) which calls for limiting debt to GDP ratio below 60 percent.

At present, each Pakistani, man, woman and child is indebted with Rs. 166,723 which is several times more than what the government spends on health and children education.

Of the total public debt, domestic debt was recorded at Rs. 22.478 trillion at the end of March 2020. External debt and liabilities (EDL) have been recorded at $110 billion.

With the depreciation of Pakistani rupee, the debt is increasing in rupees terms. It indicates that if the dollar appreciates by one rupee against Pakistani currency, the external debt burden increases by Rs. 110 billion.

It is worth mentioning that during the last nine months, the government has mobilized (borrowed) $8.017 billion.

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