THE numbers released by the State Bank regarding the government’s domestic debt stock and servicing at the end of November present us with a mixed picture. That the debt has increased almost 12pc to Rs35.8tr and debt repayments 38pc to Rs921bn from a year ago underscores the expanding gap between the government’s income and expenditure. Not only that, it also underlines the fact that the government is forced to borrow more money every year from domestic and foreign sources to pay its bills, including repayments on old loans, because it has utterly failed in its attempts to execute tax reforms in order to mobilise enough revenues. The hefty growth in public debt means that government expenditure on debt repayments will continue to rise quite substantially with the passage of time. The central bank, for example, reported in its recent monetary policy report compendium that the steep rise in interest payments consumed over 73pc of the total tax collection of the FBR and constituted close to 53.8pc of the total federal expenditure in the first quarter of the present financial year to September. It also means that the fiscal space available for undertaking socioeconomic development in the country is shrinking fast.

The positive side of the picture is that the composition of domestic loans is changing in favour of long-term, permanent debt from short-term, floating debt. This change is indicative of the improvement in the government’s debt management strategy. At the same time, we see a significant drop in unfunded debt or public investments and savings in the national saving schemes owing mainly to decreased interest rates. But the changes in the composition of the borrowings will only help us delay the loan repayments for a while without slowing down the pace of growth in the size of the debt stock. The only sustainable way of controlling debt and creating room for greater development spending lies in mobilising taxes in keeping with the economy’s true potential.

Published in Dawn, January 27th, 2021