July-December 2020: 21.08pc increase in domestic debt servicing cost witnessed

ISLAMABAD: There was an increase of 21.08 percent in domestic debt servicing cost during the first six months (July-December 2020) of the current fiscal year compared to the same period (July-December 2019) of last fiscal year largely because of government borrowing.

A comparison of consolidated fiscal operation of the first half of the current fiscal with the same period a year before revealed a 21.08 percent increase in debt servicing cost - Rs 1,356.954 billion in July-December 2020 compared to Rs 1,120.701 during July-December 2019.

An official of finance ministry, however on the condition of anonymity said that re-profiling of short-term domestic debt of around 25 percent has been one of the factors for increase in the debt servicing. He did not disagree that government reliance on borrowing is having consequences on inflation.

He further noted that as the government would be required to borrow more to meet it’s debt servicing requirement, it would add to the total domestic debt stock on maturity along with actual borrowing and debt servicing cost at which it was borrowed by the government.

The official was of the view that the debt servicing cost of domestic debt would increase in the current fiscal year as well as for the next two fiscal years because finance ministry is considering reducing the short-term debt maturity to 25 to 30 percent from over 70 percent. There is a cost of converting short-term debt into long term, which is of course at a relatively higher rate he stated.

He also explained that the primary deficit is in surplus because debt servicing cost is not reflected in it while it is reflected in the fiscal deficit. Debt servicing of foreign debt has declined from Rs 160.495 billion during the first half of last fiscal year to Rs 118.204 during the first six months (July-December 2020-21) of the current fiscal year.

Copyright Business Recorder, 2021