KARACHI, Feb 4: The burden of domestic debt rose sharply by 35 per cent in the last five years adding over Rs600 billion in the total while government’s reliance on floating debt has significantly gone up.
Latest official data showed that the government geared up its borrowing in the current year as it has already added Rs91 billion in just four months. Further detail reveals that the government was heavily relying on floating debts and mostly market treasury bills.
The overall domestic debt stood at Rs1,578.8 billion on June 30, 2000 which rose to Rs2,133 billion on June 30, 2005, showing an increase of 35 per cent. The addition of Rs91 billion till October 30, 2005 makes the total debt increase in five years equal to Rs603 billion.
This high growth of domestic debt would certainly have negative impact on the economy and the government would have to spend more on debt servicing. Analysts said that fast growth in borrowing during the current year could add more than Rs200 billion in the domestic debt.
Though the debt servicing in terms of percentage of the GDP has reduced but in real terms it has increased, analysts said.
The permanent debt has already become double in the last five years, though it reduced during 2004-05. This category of domestic debt increased from Rs259 billion in 2000 to Rs500 billion till June 30, 2005.
The permanent debt includes Pakistan Investment Bonds. The government piled up Rs303 billion till October 30, 2005. Prize Bonds are also on the rise. The debt in the form of prize bonds was Rs81 billion in 2000 while it reached to Rs162bn till October 2005.
The government’s reliance on market treasury bills (floating debt) has increased significantly as the category of debt increased by 35.3pc in the last five years.
Similarly, its reliance on National Saving Schemes also increased against the perception that the government discourages deposits under this head. The unfunded debt which mainly includes various schemes under NSS showed an increase of Rs188 billion or 28 per cent during the five years. The main increase was noted in Behbood and Pensioners’ scheme.
Analysts said that the rising debt would reduce the government’s fiscal space and ultimately hurt its spending for development projects. The government had announced to keep the fiscal deficit up to 3.8 per cent but after the October 8 earthquake it is expected that fiscal deficit could be around 4pc on June 30, 2006.
The disastrous quake compelled the government to increase its spending for immediate relief.
Independent economists predict a record increase in government borrowing and a one per cent decrease in overall growth of the GDP due to the quake which displaced over two million people and destroyed major parts of Azad Kashmir and NWFP. However, the government still believes that the target of 7 per cent economic growth for the current fiscal year is achievable.
