Debt is costlier than we think

Would you believe that out of every 100 rupees the federal government spends each year, Rs52 goes on debt servicing? Sadly, this is true. During July-September 2022, the current expenses of the federal government totalled Rs1.832 trillion. Of this, Rs954 billion was used for domestic and foreign debt servicing, according to the quarterly fiscal review. Domestic debt servicing alone consumed Rs835bn, which equals about 45.6 per cent of the current federal expenses. The remaining Rs119bn or roughly 6.5pc of the current expenses were used for foreign debt servicing. These numbers are alarming. What is more disturbing is that there is no indication that they will see any substantial change for the better in the next three quarters of the current fiscal year. Domestic debt servicing will continue to grow as high-interest rates on the government’s commercial bank borrowing will likely remain high. Look at any recent treasury bills and Pakistan Investment Bonds auction, and you may see a trend of rising yields persisting.