KARACHI: Interest payments on domestic debt grew by 80.5 per cent to Rs188 billion in July 2014 from Rs104bn in the same month last year, said a State Bank report issued last week.
The Monetary Compendium for September 2014 reveals that massive borrowing by the government at a very high cost finally emerged as the biggest burden on the economy.
The debt servicing on floating debt and non-funded debt declined but the debt servicing on permanent debt jumped by 306.7pc in July.
The report showed that the government had to pay Rs147bn in July this year as debt servicing on permanent debts compared to just 36bn a year earlier, a rise of 306.7pc. The permanent debt rose to Rs3.999 trillion in June 2014 while it was Rs2.174tr in June 2013.
The permanent debt, particularly Pakistan Investment Bonds (PIBs), was largely offered to banks and others which have very high rates of return. In the auction held on Sept 10, the three-year PIBs carried cut-off yield of 12.59pc, five-year of 12.99pc and the benchmark 10-year of 13.45pc. The rates are slightly higher than the rates offered in FY14.
The policy interest since November 2013 is 10pc while inflation remained below 9pc during this period.
The government came under bitter criticism by analysts on borrowing costly money through PIBs instead of getting cheaper money from market. Some analysts said the PIBs enriched banks who invested heavily.
A report of the SBP shows the stock of PIBs at the end of August was Rs3.3tr while the holdings of banks alone were Rs2.188tr.
Another report of the central bank shows the PIBs witnessed multiple jumps in FY14. The PIBs worth Rs1.901tr were sold in FY14 making the total PIBs as Rs3.222tr compared to just Rs1.321tr in FY13.
The debt servicing on floating debt came down to Rs24bn in July from Rs50bn last year. Similarly, debt servicing on unfunded debt fell to Rs17bn from Rs18bn in July last year.
The debt servicing as percentage of GDP in FY14 was 4.1pc, said the report, adding that it was 40.7pc of tax revenue. Debt servicing was 27.5pc of current expenditure in FY14 compared to 24.7pc in FY13.
The rising debt servicing has been a serious concern for governments, but the present one opted to borrow at the high rates that chewed over 40pc of tax money during 2013-14. The debt servicing will surely cost more during this fiscal year compared to last year.
The Compendium reported the debt stocks as a percentage of GDP rose to 42.9pc in FY14 while it was 42.3pc last year. It sharply rose from 31.3pc of GDP in FY10.