KARACHI, April 28: Despite poor response from the National Saving Schemes, country’s domestic debt increased by Rs163 billion in the first eight months of the current fiscal.

Most of the debt was due to ‘unsold treasury bills’ which the government gave to the SBP but the bank failed to offload them in the money market.

Official figures show that the country’s domestic debt has increased by almost 7.6 per cent and rapid borrowing may add more to the debt already reached Rs2,296.762 billion.

Due to low returns on the NSS, the total investment through this channel (unfunded debt) was just around Rs4.3 billion. During the first eight months of the fiscal year 2005-06, the government also retired some Rs37 billion as market treasury bills.

However, market treasury bills for replenishment (unsold T-bills) reached Rs213.7 billion. The government gives T-bills to the SBP against cash and the central bank sells them to banks.

Banks have been living under tight monetary situation. The SBP does not allow enough liquidity for banking and banks have to visit the discount window for borrowing.

However, the banks themselves increased their advances and the advance-to-deposit ratio reached the historically high level.

“Increasing local debt has always been a concern but the present government, which succeeded in increasing revenue over 100 per cent in the last five years, will face problems in the shape of shrinking fiscal space,” said an analyst.

The government plans to increase its development expenditure to meet the requirement of high economic growth and wants to develop infrastructure facilities across the country. Higher debt means more repayment on account of interest on borrowings that could hamper the plan for more allocation for development expenditure.

The government decision to reduce interest rate on the NSS has resulted in outflow from the scheme. Only Bahbood scheme is flourishing because of higher payment to widows. This outflow cut debt repayments of the government, but this can not bring positive result if the overall debt used to increase. “The debt may touch Rs200 billion at the end of the current fiscal,” said the analyst.

The permanent fund of the government showed a decline of Rs16.749 billion at Rs484 billion till the end of February 2006. The largest debt contributed by the floating debt reached Rs954 billion, including fresh addition of Rs176 billion in the last eight months.

The unfunded debt, which reached Rs858 billion, included only Rs4.3 billion in the same period. The government has substantially reduced its budgetary borrowing because of higher inflows from overseas Pakistanis. Analysts said that higher inflows in the form of remittances should be used for lowering debt.