Interest costs have dramatically increased to Rs2.57 trillion during the first half of this fiscal year due to reluctance to debt restructuring. This amounts to 65% of the annual budget for debt servicing, which is driving the government to reduce all other spending, with the exception of that for defense.
During the July-December period of the current fiscal year, there was an alarming increase of 77% in the cost of interest on the federal government debt stock, The Express Tribune reported on Sunday citing sources in the Ministry of Finance.
The fresh provisional details suggest that, due to the precarious situation, there has been a cumulative reduction of 15% in all other non-development expenditures, excluding defense. The development expenses were slashed by 50% to create room for other expenses, according to government sources.
The finance ministry paid about Rs2.57 trillion in interest costs, up by Rs1.1 trillion or 77%, according to the report. For the current fiscal year, the government had budgeted Rs3.95 trillion for interest expenses but 65% of it has been consumed in just six months.
Amid the high cost of debt servicing, the Monetary Policy Committee of the central bank is also scheduled to meet on Monday to review the possibility of further increasing its interest rate to contain inflation and attract foreign inflows.
Earlier this month, Finance Minister Ishaq Dar said that the cost of debt servicing may increase to nearly Rs5 trillion in this fiscal year – which will equal more than half of this year’s total budget of Rs9.6 trillion.
According to the report, excluding military pensions and expenses on the armed forces development program, Rs638 billion was spent on defense in six months – Rs118 billion or nearly 23% more than last year. The annual stated defense budget is Rs1.563 trillion and six-month spending is in line with the allocation.
With a net income of Rs2.5 trillion, accumulative spending on debt servicing and defense jumped over Rs3.2 trillion – 128% or Rs708 billion more than the government’s net income – suggesting that Pakistan will remain debt trapped because even though tax collection has increased, expenses are not being curtailed.
