Govt to pay add’l Rs166.8b as interest payment

Sharp rupee depreciation

ISLAMABAD  -   The government would have to pay additional Rs166.86 billion on interest payment on foreign loans during ongoing fiscal year mainly due to the sharp depreciation in local currency and increase in interest rate.

The ministry of finance has upward revised the interest payment on foreign loans to Rs1.79 trillion for the year 2018-19 after the massive depreciation in currency against the US dollar. Initially, at the time of budget for current fiscal year, the government had earmarked Rs1.62 trillion for interest payment for the current fiscal year. However, the government would have to pay additional Rs166.86 billion on interest payment only due to rupee depreciation.

The officials of ministry of finance informed that government had set Rs1.62 trillion for interest payment when dollar was at around Rs115 in April this year. Now, the amount of interest payment had gone to Rs1.79 trillion when a dollar is trading at Rs140. “Not only interest payment, but the size of public loan will also increase due to the rupee depreciation,” said an official. Cumulatively, the rupee has dropped 33 percent, or around Rs35, on closing basis in the one year, he added.

A single rupee devaluation adds Rs97 billion to the public debt, as Pakistan external debt is currently at around $97 billion. Therefore, the public debt had enhanced by Rs3.4 trillion in last one year only due to the value depreciation. According to the State Bank of Pakistan, the country’s total debt and liabilities increased to Rs30.9 trillion by the end of September 2018. However, the full impact of rupee deprecation has not included in Rs30.9 trillion.

This would be consecutive second year when interest rate would go beyond the targeted level. In last fiscal year 2017-2018, the government had allocated Rs1.3 trillion for interest payment. However, the amount had surged by Rs300 billion due to the sharp rupee depreciation. During last fiscal year, the government had spent Rs1.6 trillion on paying domestic and foreign debt servicing. Meanwhile, for the current fiscal year, the interest payment would cross the level of budgeted target. Mark-up payments had also enhanced Rs507 billion (1.3 percent of the GDP) in the first quarter (July-September) of the current fiscal year as compared to 1.2 percent of GDP or Rs446 billion in the same period last year. Keeping the first quarter’s trend in view, the interest payment may touch Rs2 trillion by the end of June 2019.

The massive increase in interest rate would negatively impact the budget deficit. Pakistan budget deficit had already recorded at Rs541.7 billion (1.4 percent of the GDP) during the first quarter (July to September) of the ongoing fiscal year (FY2019). The country’s expenditures had stood at Rs1.64 trillion as against the revenues of Rs1.1 trillion during July-September period of FY2019.

The budget deficit may swell to 6.5 to 7 percent of the GDP if the current trend continues in next three quarters of FY2019. However, the incumbent PTI led government is working on another mini budget, which would be announced in mid January. The second mini budget may help the government in restricting the deficit.

The government had already made the fiscal adjustment of 2.5 percent of GDP in September 2018 to restrict the budget at 5.1 percent of the GDP during FY2019. The government had slashed the Public Sector Development Programme (PSDP) by Rs125 billion to Rs675 billion for the ongoing fiscal year. The reduction was the part of the mini budget, which was announced by the incumbent government to control the budget deficit. In mini- budget, the government had also taken additional taxation measures worth of Rs178 billion. The government claimed budget deficit otherwise would have swelled to Rs2.9 trillion (7.2 percent of the GDP) as against the budget estimates of Rs1.89 trillion in current fiscal year.


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