According to the latest report of the State Bank of Pakistan (SBP), domestic debt services in the country have increased by 38% during the first five months of the current financial year.
According to a report, the Monetary Policy Information Compendium has revealed that between July and November of the fiscal year 2021, both the share of domestic loans and loan servicing have increased. Domestic debt increased by Rs 255 billion during July-November to Rs 921 billion from Rs 666 billion in the same period last year. Rising debt services effectively reduce the government’s development spending plans, which could lead to a slowdown in economic growth.
The government of Pakistan has set a fiscal deficit target of 7% for the fiscal year 2021. The SBP in its first quarterly economic report for 2020-21 observed that most of the taxes collected by the Federal Board of Revenue (FBR) were spent on debt servicing. The SBP report said that the primary balance during the July-September quarter was more than 0.6 percent, which was almost the same as in the first quarter of FY20, but the FBR paid more than 73 percent interest on tax collection.
Expenditure was paid and accounted for about 53.8% of total federal expenditure. The increase in debt servicing forces the government to borrow more, which in turn increases its liabilities. For the entire financial year 2020, the government had to spend Rs 2,387 billion to repay its domestic debt. The highest increase was in non-performing loans (NPLs) which increased by 77.6 percent to Rs 421 billion during July-November of the current financial year from Rs 237 billion in the same period last year. In the financial year 2021, the stock of fixed debt, which includes mostly Pakistan Investment Bonds (PIBs), increased to Rs 154.92 trillion. During the five-month period under review, the stock has increased by Rs. 1406 billion.
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