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Debt servicing surges to Rs2.1tr

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Debt servicing surges to Rs2.1tr
Eats up 82% of govt revenues, prompting steep cut in development budget


Shahbaz Rana May 07, 2021

the overall budget deficit widened to 3 6 of gross domestic product gdp or rs1 65 trillion in the first nine months pho to file

The overall budget deficit widened to 3.6% of gross domestic product (GDP), or Rs1.65 trillion, in the first nine months. PHO-TO: FILE

ISLAMABAD:
The cost of debt servicing jumped to Rs2.1 trillion in just nine months that consumed 82% of government’s net revenues, resulting in a steep cut in development budget and containing defence spending.
The money left after paying for interest cost was hardly sufficient to meet 60% of nine-month defence expenditures, reveals the fiscal operations summary for July-March of 2020-21.
The remaining defence and other expenses for running the affairs of the government were met by taking new loans, the finance ministry report, released on Thursday, showed.
“The finance ministry numbers are always different from the planning ministry numbers but this year during the first nine months the spending is lower,” said Planning Minister Asad Umar. He said that the full-year spending was still expected to be Rs650 billion.

The failure to enhance revenues and the central bank’s decision to fix interest rate at 13.25% in the last fiscal year despite core inflation at around 6% has led to a massive increase in the government’s debt servicing cost.
Finance Minister Shaukat Tarin also said on Wednesday that the central bank went overboard when it kept the interest rate at 13.25% when core inflation was around 5-6%.
There was 22.5% drop in the federal development spending, which amounted to a mere Rs264 billion during the first three quarters of current fiscal year.
Development spending was equal to only 40% of the annual Public Sector Development Programme (PSDP) of Rs650 billion. The federal development spending was also Rs255 billion less than the annual spending plan approved by the Ministry of Finance.
Also, defence spending remained Rs18 billion or 2.2% less than the last fiscal year and stood at Rs784 billion.
Interest payments grew nearly 12% to Rs2.1 trillion - the highest increase under any head of the budget during the July-March period.
Combined expenditures on debt and defence stood at Rs2.9 trillion, which was Rs312 billion more than the net income of the federal government despite a decent growth in revenues.
The constant high bill of debt and defence once again highlights that the Pakistan Tehreek-e-Insaf (PTI) government still lacks fiscal space for stimulating the economy and spending on human development. Finance Minister Tarin’s plan to achieve higher economic growth in the next fiscal year through public sector spending may face many fiscal challenges.
The cumulative spending of Rs2.9 trillion on debt servicing and defence needs was equal to 85% of total taxes collected by the Federal Board of Revenue (FBR) in the nine-month period. The FBR pooled Rs3.4 trillion during the period.

Net federal receipts are calculated after excluding the share of four provinces from the gross federal receipts. Gross federal receipts stood at Rs4.6 trillion, which increased by 5.1% over the same period of previous year.
The share of provinces in federal collection slightly increased by 2.8% to Rs2 trillion despite an increase in tax collection by the FBR. The four provinces get 57.5% of federal taxes as their share under the National Finance Commission (NFC) Award.
The overall budget deficit widened to 3.6% of gross domestic product (GDP), or Rs1.65 trillion, in the first nine months.
However, the government has showed a huge statistical discrepancy of Rs167 billion in expenditures. After adjusting this discrepancy, the overall budget deficit would shoot up to 4% of GDP or Rs1.8 trillion, up 7% than the last fiscal year.
A finance ministry official said that the Rs164-billion discrepancy was in the provincial fiscal operations and the numbers were being reconciled.
Alarmingly, the interest payments were equal to 4.6% of GDP, which was higher than both the federal and overall budget deficit in the nine-month period.
The federal budget deficit in the first nine months stood at Rs2.06 trillion, which was equal to 4.5% of GDP.
Former finance minister Dr Abdul Hafeez Shaikh had claimed to have achieved fiscal discipline despite booking over Rs3 trillion in budget deficit every year.
Revenues are falling short of the needs even though the government is heavily burdening the people with taxes on fuel, electricity and consumer goods.

The petroleum levy collection stood at Rs369 billion, up 86% or Rs171 billion, in just nine months.
Non-tax revenue collection increased to Rs1.2 trillion, showing 13% growth in the period under review. The central bank’s profit dropped to Rs498 billion, a reduction of 22% in nine months against earnings of Rs636 billion in the same period of last year due to the overall reduction in interest rate.
After paying Rs2 trillion to provinces, the net federal revenues amounted to Rs2.6 trillion, which was better than the first nine months of previous fiscal year.
Total federal expenditures stood at Rs4.63 trillion, which were higher by Rs201 billion or 5% over the same period of last fiscal year. There was an increase of 7% in current expenditures in nine months, which stood at Rs4.2 trillion.
Published in The Express Tribune, May 7th, 2021.
 
The cost of debt servicing jumped to Rs2.1 trillion in just nine months that consumed 82% of government’s net revenues, resulting in a steep cut in development budget and containing defence spending.
The money left after paying for interest cost was hardly sufficient to meet 60% of nine-month defence expenditures, reveals the fiscal operations summary for July-March of 2020-21.


This is a vicious unending cycle, will take some doing, an uphill task though to come out of it.

Caught in the tentacles badly.

PM IK other finance gurus, Shaukat Tareen, others seems to have no clue to come out of it. The reason debt and interests are called a curse. Tax net and collection need to be expanded to close to 8500 billion Rs. per year(double the current collection), other drastic measures need to be taken, cut in imports and non developmental expenditure.
 
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PM IK other finance gurus, Shaukat Tareen, others seems to have no clue to come out of it.
We were in same situation after Nawaz Sharif was ousted in 1999 coup. It was brilliant team of Shaukat Aziz that sorted out the mess. Root of the problem is Nawaz Sharif not Imran Khan.
9523FFF4-B2BA-4DF9-94F1-EDE0E6694B95.jpeg

Tax net and collection need to be expanded to close to 8500 billion Rs per year(double the current collection), other drastic measures need to be take, cut in imports and non developmental expenditure.
Pakistan's economy is not growing because of debt trap. Without growing economy you can't increase revenues, and thus taxes
 
We were in same situation after Nawaz Sharif was ousted in 1999 coup. It was brilliant team of Shaukat Aziz that sorted out the mess. Root of the problem is Nawaz Sharif not Imran Khan.
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Pakistan's economy is not growing because of debt trap. Without growing economy you can't increase revenues, and thus taxes


Right, know it is not due to current PTI govt, infact they are doing there utmost to come out of the quagmire.

That why I called it a vicious cycle, economy is not growing due to depth trap, and 'cause of dept trap economy is not growing.

An uphill task...any solutions??

Look how in Musharraf era it reduced phenomenally, think it is due to huge FDI, Pakistan was getting about 8-9 billion USD annually at that point in time.
 
Try hiring Shaukat Aziz again 🥳


And with it a Musharraf kind of COAS as president...will make a good duo.:azn:

Shaukat Aziz was brilliant, an IBA educated person, a Wharton biz school accredited, served in IMF, at top positions in City Bank, I guess.
 
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Isn't this a threat to our National security? we have not yet accounted the pension problem, the losses made by Government Owned Enterprises and the Circular Debt in Energy Sector. How are we gonna survive this?
 
Isn't this a threat to our National security? we have not yet accounted the pension problem, the losses made by Government Owned Enterprises and the Circular Debt in Energy Sector. How are we gonna survive this?

Same way you manage personal debt really. You work harder, earn more and pay it off. For a country that means increasing GDP, exports and taxes.

Also with personal debt people often work around it by re-financing to lower interest rates. Pakistan has done some of that too.

The biggest thing we need to stop doing is borrowing more money to spend. It might make sense spending it on something which will return money, but not to cover subsidies etc.
 
Pakistan's economy is not growing because of debt trap. Without growing economy you can't increase revenues, and thus taxes

Pakistan can collect 8 trillion in tax revenues with this economy according to IMF and others. Why no genius has ever done this is the question.

Over 50 trillion of Pakistan economy is informal or black and not even documented again no genius ever thought of documenting it.

We just need $50 billion US revenues to run the state and we cant even do that.

The beautiful stooges of the establishment left the state worse than nepal and the objection is why hasnt IK made the state like singapore.

IMO PTI for some reason is also reluctant to bring drastic structural reforms because of backlash from jamhoriat ko khatra group. They cant accept EVM in elections what will they do when they are taxed.

Immediate Privitazation is needed. 1.8 trillion are the losses in Soes so even if we give them for free or shut them down it would create some fiscal space.

During IK era the state has documented record number of companies around 141000 which is more than in what happened in 70 years. It needs to carry on.
 
If i recall correctly, it was not the debt going down that caused Debt-to-GDP to go down, rather it was the GDP going up.
Gdp went up between 2008 and 2018 too yet debt to gdp increased. So stop with your non sense
Isn't this a threat to our National security? we have not yet accounted the pension problem, the losses made by Government Owned Enterprises and the Circular Debt in Energy Sector. How are we gonna survive this?
You won't. State of Pakistan will crash in 2025
 
Gdp went up between 2008 and 2018 too yet debt to gdp increased. So stop with your non sense

You won't. State of Pakistan will crash in 2025

Don't be so dramatic. Greece went bacnkrupt a few years ago - nothings changed. So did Argentina, life goes it. Assume we did default on the loans, what do you think will happen? Other than a reality check to all those living beyond their means - nothing. People will just re-arrange new payment plans to get their money back. The only big impact will be we won't be able to get credit and the negatives associated with that.
 
Don't be so dramatic. Greece went bacnkrupt a few years ago - nothings changed. So did Argentina, life goes it. Assume we did default on the loans, what do you think will happen? Other than a reality check to all those living beyond their means - nothing. People will just re-arrange new payment plans to get their money back. The only big impact will be we won't be able to get credit and the negatives associated with that.
Going default is no joking matter. Greece was only spared because it is part of European Union. Independent countries like Argentine, Venezuela, Lebanon are going through hell after default.
 
Going default is no joking matter. Greece was only spared because it is part of European Union. Independent countries like Argentine, Venezuela, Lebanon are going through hell after default.

Of course life will be tough, but the guy you quoted asked "how will we survive" like as if it's some sort of apocolypse. Although TBW apocolypse would probably be easier to survive in Pakistan, because that is the only way the elitist leaches will leave our country alone.

Besides i personally think it won't go that way.
 
Gdp went up between 2008 and 2018 too yet debt to gdp increased. So stop with your non sense

You won't. State of Pakistan will crash in 2025
What he meant was mushy era, ur showing zardari era.
Pak was on verge of being call a failed state in 1998-99, Yet with we showed decent growth.
The first 3 years of mushy were bad, same with pti, with persistent planning, financial discipline we shall once again show same growth.
 

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