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Distributional Implications of Interest Receipts & Payments of the Government

Estimates in Tables 1 to 7 can be used to analyse the distributional implications of the interest transactions of the government. It is evident from the tables that the major interest receipts of the government came from the provinces. Financial institutions and public sector corporations (PSCs) which received sizable amounts of loans (channelled through the federal government) did not contribute to the interest receipts of the government in proportion to the amounts received by them. This means that the government receipts of interest came relatively more from the projects or individual using provincial loans and less from those benefiting from financial institutions and PSCs. Payments made by provinces most probably came from taxes paid by the people at large whose effective burden is usually shared by low- and middle-income groups. On the other hand, it is now well established that the major beneficiaries of loans from financial institutions are big companies and influential borrowers. The loans provided to PSCs in the first place have not been used efficiently and the major beneficiary of the loans has probably been public bureaucracy.

On the side of interest recipients we can see from Table 6 that the major share went to domestic debt holders (53 percent in 1979-80 and 75 percent in 1991-92). Among them the most prominent beneficiaries are those holding unfunded debt (48 percent in 1985-86, 53 percent in 1988-89 and 33 percent in 1991-92). Within the unfunded debt categories the major share of interest is received by holders of Khas deposit accounts and Khas deposit certificates. Although the information regarding the distribution of investment in these schemes by income groups is not readily available, it is generally believed that majority of investors in these schemes is not necessarily small savers. People with black money and having access to cheap loans through political sources have also been observed to invest in these schemes to whiten their money and cam the differential profit margin offered by them.


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This description of the contributors and recipients of interest on public debt points out that the distributional impact of these loans on the economy may not have been very healthy one.

Total Interest Receipts and Payments by Govt of Pakistan (Selected Years) Table 1

 

Years

Total

Total Interest Receipt as % of

Total

Total Interest

Ratio of Total Interest

 

Interest

Total

Total Non

Interest

payment as % of

Payments to total

 

Receipts

Revenue

Tax Revenue

Payments

total Expenditure

Interest Receipts

1947-48

27

13.6

71.05

9

3.8

0.33

1971-72

699

10.1

48.8

1480

23.5

2.1

1976-77

2471

12

55

3657

20.2

1.5

1979-80

4029

10.5

76

5070

9.3

1.3

1983-84 (R)

7439

10.3

53.4

14128

14.1

2.2

1985-86 (R)

11942

133

68.4

19734

14.7

2.2

1987-88

16183

13.8

68.7

33238

18.4

2.3

1988-89 (R)

18485

13.3

64.3

38132

19

2.3

1989-90 (R)

20141

131.1

59.5

45291

21

2.2

1990-91 (R)

24935

14

64.7

54896

22.3

2.2

 

 

Interest on Inter government Transactions in Pakistan, 1979-80 to 1990-91Table 2

 

Year

Rs. in Million

Yearly rate

% of total

% of Non-

 

Inter governmental

of change

revenue

Tax Revenue

 

Interest Receipts

(Percentage)

 

 

 

1979-80 (R)

2586

-

6.72

48.88

1980-81 (BK)

2556,

-1.2

5.44

31.34

1982-83 CIO

... ..

3009

8.9

5.08

29.64

1983-84 (R)

3720

24

5.15

36.64

1984-85 (R)

4438

!9]

5.74

27.42

1985-86 (R)

6561

48

7.3

37.59

1986-87 (R)

7078

7.9

6.81

33.79

1987-88 (R)

10494

48

8.97

44.53

1988-89 (R)

94 12

-10

6.77

32.71

1989-90 (BIO

10255

9

6.65

30.27

1990-91 (BIO

15072

-

 

 

47

8.4 39.13

 

 

 

Interest Payment to Federal Government by Different Government Agencies in Pakistan, 1976-71 to 1990 1991 Table3 (a)

 

 

 

 

Punjab

U)

Sind

(2)

NWVB

(3)

Ualochlslan

(4)

Total

Provinces

(5)

Local

Bodies

(6)

Financial

Institutions

(7)

All

Others

(8)

Grand

Total

(9)

15+6*7*8!

 

 

 

 

 

1970-71 (R)

60

32

14

6

112

34

 

588”

734

On Cash

48

28

12

5

93

 

 

 

 

All Others-

12

4

2

         i

L_

 

 

 

 

 

1979-80 (R)

1040

*410

338

169

1958

286

304

2129"

4677

Cash -

1023

404

336

168

1932

25

31

 

 

All Others

17

6

2

1

26

261

273

 

 

 

1983-84 (R)

1940

921

691

313

3865

460

245

2869-

3479

Cash

1919

902

688

311

382-

37

34

 

 

All Others

»j

19

3

         2

45

423

211

 

 

 

1986-87 (R)

4226

2095

1325

642

8287

1025

419

5609"

15340

Cash

4158

2063

1318

608

8146

340

22

 

 

AU Others

68

32

1 7

34

141

685

397

 

 

 

1988-89 (R)

4990

2113

1862

82?

9792

647

1010

7036-

18485

Cash

4890

2077

1854

723

9544

38

14

 

 

All Others

100

36

8

104

248

609

997

 

 

 

1990-91 (R)

6894

2945

2576

1100

13515

1414

1484

8519"

24932

Cash

6808

2902

2559

1050

13319

48

12

 

 

All Others

. 86

         <3

_ . 17

50

196

1366

1472

 

 

 

 

Percentage Distribution of Interest Paid by Different Agencies to Federal Government in Pakistan, 1970-71 to 1990-91 Table 3 (b)

 

 

 

 

% Share in Total Payment by Provinces

 

% Share in Total Payment by All Agencies including Provinces

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Local

Financial

All

 

Year/Loan Type

Punjab

Sind

NWFP

Balochistan

Punjab

Sind

NWFP

Balochistan

Bodies

Institutions

Others

 

1970-71

53 6

28 6] 12 5

5

8.2

4 4

19

0.82

4.6

80 1

 

Cash

(51.6).

(30)., (13)

(5).

 

 

 

 

 

j

 

All Others

(63 2).

(21).

s (10 5)

(5).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1979-80

53 1

21 4

173

8.6

22 2

8.8

7.2

3-6

6.1

6.5

45.5

 

Cash

(53).

(21)

(17 4)

(87)

I-

 

 

 

 

 

 

 

All Others

(654)

(23).

(7 7)

(3 8)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1983-84

50.2

24 17 9

8

26.1

12 4

93

4 2

6.2

3 3

38 6

 

Cash

(50 2)

(23 6)

(18)

(8)

 

 

 

 

 

 

All Others

• (46.7)

(42)

(6 7)

(4 4).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1986-87

51

253

16

7.7

27.5

13.7

8 6

. 42

6.7

2.7

366

 

Cash

(51).

(25 3)

(16)

(7 5).

 

 

 

 

 

 

 

All Others

(48).

(23)

(5)

(24.)

 

 

 

 

 

 

 

 

 

 

             i         

 

 

 

 

 

 

 

1988 89

51

21.6; 19

84

27

11 41

10 l

4 5

35

5 5

38 1

 

Cash

(51).

(22)

09)

(7.6T

 

 

 

 

 

 

 

 

All Others

(40.3)

(14 5)

(3)

(42).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1990-91

51

2L81

19'

8

27.7

11.8

10.3

44

5.7

6.8

34 2

 

Cash

(51).

(22).

' 09).

(7.9).

 

 

 

 

 

 

 

 

All Others

(438).

(22)1

(8.7)1

(25 5)

 

 

 

 

 

 

 

 

                                                               

 

 

Classification of Interest Received by Federal Government from Various Agencies (By Category of Loan) 1970-71 to 1990-91 Table 3 (c)

 

 

Years

Punjab

Sind

NWFP

Balochistan

Total

Local Bodies

Financial

 

 

 

 

 

 

 

Institutions

1970-71

 

 

 

 

1

Cash

80

88

86*

' 83"C 83

NAj NA

Others

T20T

XT2T

"TIT

.(17) .(17);

 

1979-80

 

 

 

r

 

Cash

98

99

99

99 99

8-7! 10

Olliers

X2)

"TIT

0)

(IT ' ' TT

(91 3)] (90)'

1983-84

 

]

            J          

-

Cash

99

99

99 b

99 99: 8

13.9

Others

ID

T7

TOT

05 ID| (927

6861)1

 

 

 

1986-87

 

 

 

 

 

 

 

Cash

98

“981

99.5

95

98

33 2

53

Others

~(2)

12)

X03)

" (5)

021

(66.8)

T94J)

1988-89

 

 

 

 

 

 

 

Cash

98

98

99T

87

971

5 9

TT

Others

X2)

JTJ

(0.4)

TT3T

X3T

(947)'

79856)

1990-91

 

 

 

 

 

 

 

Cash

99

99

99

95

99

TT

0811

Others

XU

TT

TD

T5T

"TIT

(96.6)

(99 2)

                           

 

 

 

Ans (All Types) by Federal Government f Government's, 1971-72 to 1990-91 Table 4

 

 

Years

GRANTS

LOANS

Total

Finan.

Asstt.

Punjalij

Sind

NWFP

Halo.

Total

Punjali

Sind

NVm>]

Halo.

Total

 

1971-72

71.9

12

41.2

16.7

141.8

131.7

1

50.2! 73 8j 95-9

351.6

987.7

1972-73

256

116.4

44.7

130

548.1

1

781.9 345 6

•■176.5

112.7

1416.7

2062.6

1973-74

327.6

156

113.5

224.9

822

1000.1

361.6

176.7

133.3

532.5

2545

 

 

 

 

 

 

 

 

 

 

 

1974-75

288.3

235 4

231

107.5

862.2

1202.3

570.6

443.1

. .3441

2560

3432.9

1975-76

241.2

134.8

229.8

142.1

747.9! 1647.3

636.7

577.3

255.2

3116.5

3829.4

1976-77

472.5

103.8

382.6

-2<5,8

1195.7 1925.5

862.2

'

596.5

290 3

3674.5

4870.2

1977-78

877.3

428.3

722

379.3

2406.9! 1366

642.2

504.4

197.3

2709-9

5116.8

1978-79

1015.9

595.5

770.1

429 A

2810.9

1633 11 646

415.6

223.9

2918.6

5739 5

1979-80

572.8

513.3

792.2

306.5

2184.8

1535.5; 673.5

435.6

252.7

2897.3

5112.1

1980-81

1295 6

583.2

1043-4

ON

\J~s

cO. ! CC'.

3258.1

124

254.8

352.6

270.7

1102.1

4360.2

 

 

 

 

 

 

 

 

 

 

 

 

1981-82

714.9

310.91 1203.11 363 5

2592.41 —

 

-

1 —

6334.7

1982-83

2470.7

942.5 i 1039-4

467

4919.6

           

           

 

7939.7

1983-84

17152

1020

1731.8

6531

5120.1

3672.1

1082.6

888.2

402.5

6(>4 5.4

11166

1984-85

3192.5

1787.3

2400.51 983.5

8363.8

3754

1517.9

1232.7

660.7

7165.3

15529

1985-86

5001.4

2309-2

3289.5

1561.4

12162

4 460.5

1730.5

1410.7

803.6

8405.7

20567

 

 

 

 

 

 

 

 

.......

 

 

1986-87

N A

N A

N.A

v A

N A

N A1 N.A

N A j N A

11362

 

1987-88

N.A

N.A

N.A

N.A

N.A

N.A

N.A

|

N.A; N.A

12606

 

1988-89

N.A

N.A

N.A

N.A

N.A

N.A

         NA

N.A

NA

5876

 

1989-90

N.A

N.A

N.A

N.A

N.A

N.A

■ h N.A

|

N.A

N.A

12657|

1990-91

N.A

1

N.AI N.A

N A N.A

N.A

|

N.A) N.A

N.A

146.301

 

 

Cost of Borrowing for Domestic and Foreign Debt in Pakistan Table 6

 

Year

Cost of

Domestic cost

Foreign cost

Weighted

 

Borrowing

of Borrowing

of Borrowing

Cost

 

%

%

%

 

1980-81

3.86

5.77

2.6

” ' 1 3.86

1981-82

3.84

5.68

2.35

3.84

1982-83

4.73

6.14

3.57

4.73

1983-84

5.43

6.88

4.03

5.43

1984-85

5.4

6.79

3.98

5.4

1985-86

4.97

6.22

3.56

4.97

1986-87

5.1

6.37

3.57

5.1

1987-88

5.95

7.77

3.62

5.95

1988-89

7.1

10.09

3.46

7.1

1989-90

6.62

9.13

3.68

6.62

1990-91

5.26

8.11

2.84

5.26

 

Table 7

Overall Deficit of Pakistan by Provinces 1947 48 to 1990 91

 

Year

Overall Deficit

Federal

Provincial

Percent of GDP at

 

 

(Rs in million)

 

Market Prices

1947-48

13

NA

NA

NA

1960-61

-262

NA

NA

-1.4

1969-70

-1013

NA

NA

-2.3

1971-72

-450

NA

NA

-0.9

1976-77

12830

NA

NA

9-4

1978-79

17318

NA

NA

8.9

1979-80

14663

-

-

6.3

1980-81

14618

-

-

5.3

1981-82

20992

17521

3471

6.5

1982-83

25654

14046

11608

7.1

1983-84

25147

10022

15125

6

1984-83

36777

14330

22447

7.8

1985-86

41644

12222

29422

8.1

1986-87

46710

12000

34710

8.2

1987-88

57563

NA

NA

8.5

1988-89

56879

NA

NA

7.4

1989-90

58917

NA

NA

6.7

1990-91

58050

NA

NA

5.9

Dr Faiz Muhammad

 

Source: Elimination of Riba, Khurshid Ahmad, Khalid Rahman and Zahed A. Valie. Republished with permission.