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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.


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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

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

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

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

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.