KARACHI: Domestic debt servicing played a key role in the record high fiscal deficit in 2016-17 as its share in the deficit was 65.4 per cent.
The latest data of Ministry of Finance revealed that domestic debt servicing reached Rs1,220 billion in FY17, higher by Rs70bn compared to FY16.
Despite low interest rates prevailing for more than a year, the rising debt servicing suggests increased government borrowing from domestic sources.
The government raised Rs1,087bn for budgetary support in FY17 from banking sources, mainly from the central bank. Borrowing from the banking sector is relatively cheaper than other sources like bonds and National Savings Schemes.
However, the government’s preference for Pakistan Investment Bonds (PIBs) proved very costly as the high-yielding PIBs still constitute the largest share in the stock of government borrowing from the banking system.
The data shows the government held PIBs worth Rs4,391bn including Rs3,173.6bn by banks and Rs1,218.2bn by non-banks till end June 2017.
Debt servicing in FY17 was 30.7pc of the tax revenue and 90.8pc of the direct taxes (Rs1,343bn). The debt servicing in terms of percentage against GDP slightly decreased to 3.8pc while it was 3.9pc in FY16.
Published in Dawn, September 8th, 2017