ISLAMABAD - Pakistan spent Rs1.3 trillion on debt servicing during last financial year, 2015-16, which is 42.36 percent of the FBR’s tax revenue target of Rs3104 billion.

Debt servicing is continuously consuming a major chunk of the budget due to increasing public debt that has surged to Rs19.168 trillion.

On the other hand, country’s foreign exchange reserves have also jumped up to record level of $23 billion, and that, too, due to massive borrowing.

“Debt servicing costs more than spending on development and defence,” reads an official document of the Ministry of Finance.

Defence expenditures come second when it comes to consuming the budget, as they stood at Rs775.86 billion in July-June 2015/16.

The development expenditures at the federal level remained the lowest last year among three major Ds (debt servicing, defence and development) as the federal public sector development programme just consumed Rs661.29 billion in the previous financial year.

Public debt servicing consumed nearly 42.36 percent of the total revenues last financial year. Ideally, this ratio should be below 30 percent to allow the government to allocate more resources to social and poverty related matters. The break-up of Rs1.3 trillion shows that the government paid mark-up of Rs1.12 trillion on domestic debt and Rs118.4 billion on foreign debt during the financial year that ended on June 30 2016.

Domestic interest payments constituted around 90 percent of total debt servicing, which is due to increasing volume of domestic debt in overall public debt portfolio.

Further analysis of domestic debt servicing reveals that large portion was paid against PIBs (Rs477 billion), National Savings Schemes (Rs198 billion), T-Bills (Rs144 billion) and (Market Related Treasury Bills (Rs126 billion).

Meanwhile, the government has estimated to spend Rs 1,360 billion on interest payment in the next financial year, 2016-17, which is to be 37.56 percent of the FBR’s tax revenue target of Rs3, 621 billion. The government will pay mark-up of Rs1.247 trillion on domestic debt and Rs113 billion on foreign debt.

Pakistan’s public debt surged to Rs19, 168 billion by end March 2016, registering an increase of Rs1, 787 billion during first nine months (July-March) of the current fiscal year, 2015-2016. The latest Economic Survey, 2015-2016, reveals that domestic debt increased by Rs1200 billion, which was taken by the government for financing the fiscal deficit. Similarly, the external debt enhanced by Rs588 billion.