Islamabad [Pakistan], June 1 (ANI): In recent years, Pakistan has witnessed an exponential growth in its debt stock, accompanied by an alarming increase in debt payments, exerting immense pressure on the national budget, a report published in Dawn said.
The government has been grappling with an unsustainably high fiscal deficit, averaging 7.3 per cent of economic output over the past five years, leading to a staggering national debt of PKR 78.9 trillion. This includes a domestic debt of PKR 43.4 trillion and external loans amounting to PKR 32.9 trillion.
The country finds itself ensnared in a debt trap, compelled to borrow more to service its existing debt, both domestic and external. Consequently, annual debt payments have seen a significant surge.
For instance, initial projections anticipated debt servicing to soar to PKR 7.3 trillion, constituting almost 58 per cent of the budgeted expenditure for the ongoing fiscal year. However, recent reports suggest a revision of these estimates to PKR 8.3 trillion, as reported by Dawn.
The Mid-Year Budget Review Report from the finance ministry for the outgoing fiscal year validates these concerns. The report reveals a staggering 64 per cent increase in the nation’s debt payments, reaching PKR 4.2 trillion during the first six months up to December.
This surge is attributed not only to the mounting debt stock used to finance the fiscal deficit but also to the spike in domestic debt costs, fueled by record-high interest rates of 22 per cent. Consequently, expenditure on debt servicing has outpaced the growth in tax revenue, resulting in a halt to spending on development initiatives.
The report underscores the detrimental impact of elevated domestic interest rates on Pakistan’s debt servicing challenges. With the government relying on commercial bank loans to cover nearly 80 per cent of its fiscal deficit, compounded by diminishing official foreign flows, the soaring interest rates pose a significant threat.
Domestic debt payments accounted for nearly 90 per cent of total debt servicing costs during the first half of the fiscal year, according to Dawn.
This cost of borrowing has reverberated across the entire economy, stifling new private investments and stagnating growth.
However, the report fails to delve into the root causes of this debt trap. While high interest rates exacerbate the burden, the primary challenge lies in the government’s inability to rein in its fiscal deficit, leading to relentless debt accumulation.
Although a reduction in interest rates may offer some relief, it does not address the underlying issue of burgeoning deficits and debt.
The government’s imperative is to elevate the tax-to-GDP ratio to the global average by broadening the tax base, particularly targeting untaxed and undertaxed sectors, while also curbing wasteful expenditure to reduce the fiscal deficit to sustainable levels.
Only then can borrowing requirements for budget financing be minimised. The efficacy of such measures remains to be seen as the nation awaits the unveiling of the upcoming budget next month, Dawn reported. (ANI)
Disclaimer: This story is auto-generated from a syndicated feed of ANI; only the image & headline may have been reworked by News Services Division of World News Network Inc Ltd and Palghar News and Pune News and World News
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