Pakistan public debt, both external and domestic, as well as debt servicing have increased by 81.98 per cent and 51.3 per cent respectively during the last four years of the present government with public debt increasing from Rs 6 trillion in 2008-09 to Rs 10 trillion in 2011-12 and debt servicing from Rs 526 billion to Rs 796 billion.
Official documents reveal that domestic debt as well as external debt liabilities doubled during the past four years: domestic debt from Rs 3226 billion in 2008 to Rs 6223 billion in 2011-12 and external debt from Rs 2778 billion to Rs 4773 billion.
An official of the Ministry of Finance said that rising debt was a matter of concern and the situation might become unsustainable as bulk of resources would be consumed on debt servicing and nothing would be left for development and pro-poor spending. The government has failed to meet the budgetary target of interest payment during the last four years and the target set each year has been revised upward owing to higher than projected borrowing by the government for financing its budget deficit.
The government earmarked Rs 526 billion for payment of interest in 2008-09 budget, however the estimate was revised upward to Rs 653.572 billion for the year. The budget estimate for subsequent year of 2009-10 was revised upward from Rs 653 billion to Rs 672.878 billion and for fiscal year 2010-11 an amount of Rs 704 billion was estimated on account of interest payment which was revised upward to Rs 733 billion. The government estimated for budget 2011-12 is Rs 790.9 billion in the budget for interest on domestic and foreign debt.
Economists say that borrowing is considered appropriate for development of infrastructure projects and other uplift activities if their economic rate of return are higher than the cost whereas unending borrowing appetite of the present government primarily to finance burgeoning current expenditure and contain budget deficit would have serious future repercussion on account of escalating debt servicing cost and contribution to inflation. Economists argue that financial discipline is essential for moving towards macroeconomic stability, which has been lacking during the last four years and consequently the public debt has piled up in absolute and relative terms.
Dr Ashfaque Hassan Khan, former Economic Advisor, concurred and stated categorically that the level of debt was simply unsustainable. An official of the Finance Ministry said that the government borrowing entailed both short and long term negative implications for the economy which would manifest themselves through an unsustainable debt and high rates of inflation. The country's senior economic team members admitted on condition of anonymity that the government had relied on printing of notes by the State Bank of Pakistan (SBP) to cater to its borrowing requirements that had been a major factor in inflation in the country.
Increase in inflation would compel the SBP to further increase the borrowing cost which would disable the private sector from playing any role in growth that in turn would lead to unemployment and more of our industries relocating abroad.
The government is expected to borrow Rs 1.4 trillion in the current fiscal year to finance the budget deficit but what is more worrying for the officials in the Finance Ministry is the indifferent attitude of the political leadership to the problem. An official of the Finance Ministry revealed that allocation for debt servicing would increase significantly from the next fiscal year on various accounts including investment bonds issued to clear the circular debt.