Government Expenditures on Interest: Pakistan

Estimates on government expenditure on interest in Table 1 show that there has been a dramatic increase in this account of public finance in Pakistan. Interest payments of the government which was a trivial amount of Rs 9 million in 1947-48 became Rs 1,480 million in 1970-71. By 1983-84 this amount went up to Rs 14,128 million. In 1990-91, the figure on this account stood at Rs 54.9 billion, i.e. 22.3 percent of the total expenditure or 30 percent of the current expenditure.

When compared with interest receipts the interest payment of the government was only 33 percent of the former in 1947-48 but became 210 percent of the same in 1971-72. Only in 1979-80 this ratio decreased to some extent but once again by 1990-91 it became as high as 220 percent of the interest receipts. This means that there has been greater outflow of resources than their inflow on this account from the government exchequer leading to pressure on its resource position. This pressure is now obviously being felt by the government in most parts of its economic management.

Table 5 shows the major claimant of government interest payments since 1979-80. Accordingly, in 1979-80, about 47 percent of the payments was made on foreign debt and the rest on domestic debt. By 1991-92 this ratio changed dramatically when the domestic debt claimed more than 75 percent of the total interest payments by the government. There are two interrelated factors responsible for the change: (a) In the last decade or so the government has been borrowing heavily from the domestic sources (Table 6); and (b) cost of domestic borrowing as opposed to foreign borrowing has been increasing over time (Table 7).

One of the most pertinent features of the domestic debt is revealed by changes in its composition over time. There are three main accounts on which do mcstic debt is raised. They are:

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

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

Overall Deficit of Pakistan by Provinces 1947 48 to 1990 91Table 7

Dr Faiz Muhammad

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