Pakistan’s looming debt servicing

Pakistan’s government has sought approval of National Assembly to borrow over Rs15 trillion in new financial year to service its maturing public debt, which will be the highest ever borrowing and 44 per cent more than the outgoing year, underscoring Pakistan’s heavy indebtedness. The loans will be obtained during the fiscal year 2017-18, starting from July 1.

Over Rs15 trillion worth demands were placed before the National Assembly under Article 82 (I) of the Constitution as the Charged Expenditures. In case of ‘Charged Expenditure’, the National Assembly can only debate but cannot veto the spending bill.

The Rs15 trillion debt servicing related spending bill is Rs4.6 trillion or 44 per cent higher than the borrowing in the outgoing fiscal year. Except for roughly Rs1.4 trillion that will be part of the federal budget, the rest of the amounts will not be booked in the budget and will be directly borrowed from domestic and foreign markets to repay and service the loans obtained in the past.

As against Rs8.38 trillion borrowing in the outgoing fiscal year, the finance minister sought Rs13.16 trillion for repayment of the domestic debt in the next fiscal year, which is over 57 per cent more than the previous year. The finance minister has placed another demand for Rs1.23 trillion to service the domestic debt.

Debt service is the cash that is required to cover the repayment of interest and principal on a debt for a particular period. 

As the government draws its income from much of the population, government debt is an indirect debt of the taxpayers. Government debt can be categorized as internal debt (owed to lenders within the country) and external debt (owed to foreign lenders).

Another common division of government debt is by duration until repayment is due. Short term debt is generally considered to be for one year or less, long term is for more than ten years. Medium term debt falls between these two boundaries. A broader definition of government debt may consider all government liabilities, including future pension payments and payments for goods and services the government has contracted but not yet paid.