June 12, 2007	Tuesday	Jamadi-ul-Awwal 26, 1428

ISLAMABAD, June 11: Despite claiming to have broken the ‘begging bowl’, Pakistan’s debt servicing cost has been estimated to increase by a whopping 50 per cent next year against last year’s budget estimates of Rs295 billion.

Adviser to Prime Minister on Finance Dr Salman Shah, while explaining the budget, said the debt servicing for the next year “is estimated at Rs437.5 billion, which is up by 50 per cent over the budget estimate and 12.2 per cent over the past year’s revised estimates.”

During the current financial year, the government would now be spending Rs390 billion for debt servicing instead of budget estimates of Rs295 billion, showing an increase of more than 24 per cent or Rs95 billion extra.

The ‘Budget in Brief’ suggests that foreign debt servicing would go up by 16 per cent to Rs56.4 billion against Rs48.4 billion this year. Similarly, foreign loan repayment would increase by 16.5 per cent to Rs62.9 billion next year in contrast to paying back Rs54 billion during the current year.

The adviser said the massive increase in debt servicing was mainly because of the 67 per cent increase in the servicing of domestic debt, which increased from Rs191 billion in budget estimate of 2006-07 to Rs318 billion in budget estimates of Rs2007-08.

The adviser did not explain why the government failed to anticipate such a large amount in the budget projections that was due for repayment this year. He, however, blamed previous governments for heavy borrowing.

He said the government in 1996-97 and up to a part of 1999-2000, borrowed heavily at a very high cost of 18 per cent and tax-free through instruments of National Saving Certificates, a 10-year investment instrument with a ‘bullet payment’. This year, additional impact on debt servicing was Rs80 billion and next year this impact will be Rs163 billion only account of this particular instrument.

Pakistan’s external debt and liabilities increased to $38.86 billion by end of March this year, up by $1.6 billion from $37.24 billion at the end of June 30, last year, according to Pakistan Economic Survey 2006-07.

This includes a total of $37.36 billion of total external debt while foreign exchange liabilities stood at $1.5 billion.

Majority of external debt and liabilities are in the form of medium-term borrowings from multilateral and bilateral lenders, which account for nearly 80 per cent of the outstanding debt.

Of the total external debt and liabilities, public and publicly-guaranteed debt also increased by $1.2 billion in nine months of the current year to $31.08 billion as of March 31 against $29.875 billion last year. The medium- and long-term (Paris Club, multilateral, and other bilateral) debt also increased by about $1.6 billion to $31.

Of the total external liabilities, 33 per cent are owed to the Paris Club, 36.3 per cent to multilaterals. 4.9 per cent in the shape of private non-guaranteed debt while foreign currency liabilities constitute 5.5 per cent of the total external debt.

The external debt has, however, declined from 50.9 per cent of GDP at the end of fiscal year 2002 to 26.3 per cent of GDP by end-March 2007.

Similarly, the external debt and liabilities were nearly 5.8 times foreign exchange reserves at the end of fiscal 2002 but declined to 2.8 per cent by end March 2007.

Outstanding external liabilities include all government debt denominated in foreign currency, loans contracted by enterprises with complete government ownership or more than 50 per cent share, as well as external debt of the private sector.

The external debt grew by 1.6 per cent in fiscal 2005, 3.9 per cent in fiscal 2006 and by 4.4 per cent in fiscal 2007. The largest increase in stock was seen in debt by multilateral donors with a change in stock of $1.5 billion or 8.9 per cent.