Interest payments consume 45 percent of tax revenue

The State Bank of Pakistan has revealed that 45 percent of the tax revenue is being absorbed by interest payments. According to SBP Monetary Policy released on Saturday the rise in public debt with a considerable short-term maturity profile combined with reduced availability of bank credit for the private sector at higher interest rates has created challenges for monetary management in terms of striking a balance between containing inflation and promoting economic growth.
By end-December 2010, the year-on-year growth in government''s total debt was 14.8 percent, with 45 percent of the tax revenue being absorbed by interest payments. The year-on-year growth in private sector credit, on the other hand, was only 5 percent up till 12th March 2011. Without increasing the private sector''s investment and hence its contribution to economic growth it would become more challenging for the economy to generate sufficient revenues to meet its debt obligations in the future, especially with the terms of trade shifting in favour of sectors with modest contribution to tax revenues, is said.