A Senate panel on Wednesday raised concerns over government’s new borrowing strategy as the cost of external debt servicing surged to $4.8 billion in the past 11 months, a number that’s doubled in the last four years.
According to the Ministry of Finance, from July through May of 2016-17, the government has spent $4.794 billion in order to repay the external loans and interest imposed on them. For those who are wondering, the accumulated amount includes $3.6 billion in principal loan repayments and another $1.2 billion in interest payment. Adding to that, the figure is expected to rise up to $5 billion, once the entire data of existing fiscal year is available.
The figures mentioned above are sufficient enough to prove that the government needs to alter its strategy in the matters of borrowing and repayment of loans. In addition, mounting debt might negatively influence investors’ confidence in the country.
Moreover, in 2012-13 – last year of PPP government – the cost of external debt servicing was only $2.6 billion. Since then, the external debt servicing has increased rapidly and is currently consuming one-fourth of exports proceeds of the country.
It is pertinent to mention that Ministry of Finance did not offer a comprehensive picture to the Senate panel and also avoided questions relating to the interest payments on short-term foreign borrowing.
Senator Saleem Mandviwalla, chairman of the standing committee, asked whether government has any thought process behind the hefty borrowings. The finance secretary promised that ministry would share all the details with the standing committee in the next meeting.
Interestingly enough, the borrowing approach that the government is currently using is more to repay the previous debts, which could prove to be an extremely serious caveat for the economy, said Mandviwalla.
Pakistan took $7.43 billion in external loans from July through May, out of which $3.6 billion was consumed to repay previous loans, finance ministry informed the panel. The country added $3.8 billion to the total public sector debt stock.
Out of $2.9 billion in foreign commercial borrowing during July – May, the government has returned only $654 million worth of loans and another $49 million was paid in interest.
It seems that the government is currently in a dire need to revamp its borrowing strategy in order to contain the debt situation “before it’s too late”.