Size of Interest Receipts and Payments: Pakistan

Table 1’ presents estimates of the aggregate interest receipts and payment of the federal and provincial governments. Estimates on the receipts also include intergovernmental transactions which are shown separately in two different tables. In Table 2 we show figures calculated on the basis of a methodological note on intergovernmental interest in the Economic Survey of 1990-91. Tables 3 (a) to 3 (c) provide details of interest payments by different agencies to the federal government taken from the explanatory memoranda on budgets of different years. Unfortunately, the two sets of data do not provide comparable estimates of intergovernmental and intragovemment interest transactions. Yet both sets can be used to view the issue from different angles. Table 4 provides estimates of loans and grants from federal government to provincial governments and other agencies. These estimates can be used to explain the trends in overall and intergovernmental interest receipts. In Table 5 we present data on interest payment by the government on different sources of debt. Composition of domestic debt is detailed in Table 6. We have put all these tables together as they are interrelated and are needed for elaborating the si/.c of interest dealing of the government. Some of the important observations which can be made on these tables are as follows:

1. Aggregate interest receipts reported in the revenue account of the federal budget has been one of the important sources of total revenue (Table 1). In 1947-48, they were about 14 percent of the total revenue and about 70 percent of the non-tax revenue. Since then in spite of the fact that a number of heads have been added in the list of non-tax revenue, the share of “interest” has continued to remain very high. In the last ten years it has remained around 60 percent of the non-tax revenue or about 13 percent of the total revenue.
2. Table 3 (a,b and c) enables us to disaggregate the interest receipts of the government. The estimates show that while in 1970-71, the major source of government interest receipts was public sector enterprises (PSEs) and similar other departments contributing about 80 percent of the total, by 1979-80 the scenario was completely changed. Since 1979-80, about 50 percent of the interest receipts of the federal government has come from provincial governments and local bodies. In 1990-91 the share of both the categories went up to 59 percent.
3. According to the estimates in Table 2 intergovem- ment interest payments constituted about 63 percent of the total interest receipts of the federal government in 1979-80. By 1983-84, this figure came down to 50 percent probably because the federal government started providing relatively more funds to provinces in the form of grant rather than loans (Table 4). In 1990-91, we again see intergovemment interest payments soaring to 60 percent of the total receipts by the federal government. This is usually attributed to two reasons:

• Better recovery rate
• Increase in domestic cost of borrowing which was almost doubled between 1980-81 and 1990- 91 (see Table 7).

1. From Tables 3 (a) and 3 (c) we may also see that the major head on which the provinces paid interest to die federal government was cash loans (83 to 99 percent) whereas for local bodies and financial institutions the major head (90 to 99 percent) was other loans (mainly foreign loans). Unfortunately, it is not clear from the available data what is the source of cash loans. But the fact that other loans including foreign loans, USAID local currency loans and German loans point out that cash loans must have been raised from domestic sources. If this is so then it should have profound implications for eliminating interest on intergovemment transactions. We shall discuss this in the next section.
2. An interesting feature of estimates in Table 3 is that while the interest payments by provinces to the federal government increased by about 67 times between 1979-80 to 1990-91 for financial institutions, this increase was only about five times and for ‘all others’ the increase was only four times in the corresponding period. This, in our view, has distributional and efficiency implications for the economy which we shall examine after analysing the estimates on ‘interest payments by the government.’

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

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

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

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

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

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

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

Dr Faiz Muhammad

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