APBF wants strong reforms for external stability
APBF wants strong reforms for external stability as budget deficit reaches 2.3% of GDP
Karachi: As the country’s budget deficit has reached 2.3% of Gross Domestic Product during July-Nov of fiscal year 2017-18, the All Pakistan Business Forum has stated that the government is deviating from the path of fiscal discipline mainly due to heavy cost of domestic and foreign debt servicing.
APBF President Ibrahim Qureshi said the figures negate the federal government’s claim of reversing the trend of the last fiscal year when the budget deficit peaked to a record high of Rs. 1.86 trillion.
He said that the budget deficit and the current account deficit have become the biggest challenge for the economy, overshadowing the government’s economic performance in other areas. Because of these twin deficits, there are apprehensions that Pakistan might go back to the IMF for yet another bailout package, APBF leader warned.
He said that government should undertake strong reforms to maintain external stability, ensuring debt sustainability and supporting higher economic growth by containing the budget deficit.
He said the present trend shows that the annual budget deficit target of 4.1% of GDP approved by the parliament in June last year has now become unrealistic in just five months due to rising spending on debt servicing, forcing the country to go for more borrowing from the international market.
According to State bank of Pakistan (SBP), the country’s total external debt servicing stood at $2.09 billion during the first quarter of FY18. On principal side, external debt servicing under public debt stood at over $900 million, some $32 million on Public Sector Enterprises (PSEs) guaranteed debt, $53 million on PSEs non-guaranteed debt and around $ 50 million on private non-guaranteed debt. Around $670 million were paid on account of short-term debt servicing. Debt servicing on account of interest includes over $30 million to the IMF, $8 million to Paris Club and $90 million of multilaterals.
Ibrahim Qureshi said that country’s total external debt servicing exceeded $ 2 billion mark during the first quarter of current fiscal year. The decline in the SBP reserves also reflects lower inflows and higher foreign payments. The overall gap between expenditures and incomes has widened to Rs.826 billion during the July-Nov despite the fact that all provinces showed Rs. 150 billion as cash surplus during this period.
He said that the main reason behind this budget deficit is ballooning debt servicing repayments. The domestic and foreign debt servicing has increased to around Rs627 billion during July through November of the current fiscal year.
APBF chief said that the government’s growing reliance on short-term domestic and foreign borrowings has significantly increased the debt servicing cost. The 7% rupee devaluation during last one year would also increase the government’s cost of external debt servicing.