KARACHI: The State Bank in its latest report revealed that interest payments on domestic debt have shown an annualised growth of nine per cent during July-January of FY14.

This abnormally high growth of domestic debt has substantially increased debt servicing, causing a serious problem for the government which is already facing a poor tax-to-GDP ratio. The country’s revenue collection is also less than the target set for this fiscal year.

The Monetary Policy Information Compendium for March 2014 released by the State Bank showed that the domestic debt increased by over Rs1 trillion.

The stock of government’s domestic debt increased by Rs1074 billion during July-January of FY14,” said the State Bank report. The stock of debt rose to Rs10.595 trillion by January 2014 from Rs9.521tr in June 2013.

The interest payment on domestic debt rose to Rs632bn during July-January compared to Rs579bn during the same period last year.

The massive debt payment significantly reduces government’s liquidity already suppressed due to low revenue collection.

The country’s debt stock as percentage of the GDP is increasing at an alarming rate since 2009.

The State Bank report showed that debt stock to GDP in FY-09 was 29.2pc which rose to 41.6pc in FY13. The government paid highest interest to floating debt that is market treasury bills.

The State Bank reported that the stock of t-bills rose to Rs5.99tr on January 2014.The interest paid on this account was Rs335bn during the seven months of the current fiscal year.

Interest paid on permanent debt was Rs155bn and Rs142bn interest was paid on unfunded debt. The government has been accumulating external debt which declined last year but the recent move to get loans from IMF and other multilateral sources, including selling of Eurobond, would increase debt repayment, reducing government’s revenue in hand.

The report said that the stock of public sector’s external debt decreased by $0.4bn during first half of fiscal year 2014.

“Stock of external debt as percentage of the GDP declined to 25.9pc by the end of June 2013,” said the report.

The government is trying to bring down the fiscal gap, but debt-servicing on domestic debt again compels the government to re-borrow to meet the expenses.

The State Bank in its earlier report had indicated that the fiscal deficit could be in the range of 6 to 7pc of the GDP which further magnifies the importance of rising domestic debt servicing.