Islamabad                    -                The profit of State Bank of Pakistan (SBP) has declined by almost 95 percent to Rs13 billion during FY 2018-19, while the total debt and liabilities during 15 months from July 2018 to September 2019 by Rs11.61 trillion, the government fiscal policy statement 2019-20 said.

The fiscal policy statement 2019-20 further said that the growth witnessed in total expenditure was lower than last year primarily due to decrease in development expenditure which reduced by around 25 percent during FY 2018-19 on the back of reduction in Public Sector Development Program (PSDP) spending both at Federal and Provincial level.

Since mark-up earned on government debt represents major portion of SBP earnings the transfer of SBP profits implies partial reimbursement of interest payments. However, SBP incurred significant exchange rate losses on its external liabilities, resulted in steep decline in SBP profits during FY 2018-19, the government fiscal policy statement 2019-20 said.

SBP profits remained the most important source for the government as it contributed on an average 30 percent in non-tax revenue during FY 2013-14 to FY 2017-18. However, during FY 2018-19 SBP profits declined by almost 95 percent to stand at Rs13 billion.

In addition to SBP profits, the decline in PSDP spending for two consecutive years (which involves government’s lending to public sector institutions) tend to lower mark-up payments from PSEs. The cumulative decline in revenue from these sources more than offset the higher collection from royalties on gas and oil discount retained on crude oil and other levies. The increase in these revenues mainly attributable to rise in rupee value of crude oil.

Regarding the total expenditure, the report said that the Government’s total expenditure is the aggregate of two major components: current expenditure and development expenditure. The consolidated government expenditure registered a growth of 11 percent during FY 2018-19 and stood at Rs 8,345 billion. The growth witnessed in total expenditure was lower than last year primarily due to decrease in development expenditure. which reduced by around 25 percent during FY 2018-19 on the back of reduction in Public Sector Development Program (PSDP) spending both at Federal and Provincial level. The decline in PSDP was witnessed in two consecutive years which was primarily attributed to establishment of interim government, which suspended PSDP releases during the last quarter of FY 2017-18. However in FY 2018-19 the decline was spread throughout the year. The aim was to curtail current expenditure in order to enhance development spending. Although. This trend reversed as the government borrowed Rs4.11 trillion to finance budget deficit in 15 months.

Meanwhile a statement issued by the spokesman of the Finance Division said that the Ministry of Finance and Revenue has presented the Debt Policy Statement and Fiscal Policy Statement before the National Assembly which cover the 15-month period including FY 2018-19 and first quarter of FY 2019-20 and contain all factual information with respect to debt and fiscal performance over the stated period.

Talking about the increase in total Debt and liabilities by Rs 11.61 trillion the Ministry of Finance said that the Government borrowed only Rs4.11 trillion to finance its budget deficit.

The figure of Total Debt and Liabilities consists of the following five components, Total Public Debt, Public Sector Entities’ (PSE) Debt, Debt for Commodity Operations, Foreign Exchange Liabilities of SBP, Private Sector’s External Debt. Out of the total increase of Rs 11.61 trillion in Total Debt and Liabilities during Jul 2018 - Sep 2019, Rs 3.54 trillion (31% of the increase) is due to currency depreciation which is a consequence of the misplaced exchange-rate, industrial, and trade policies of the previous government that led to large and unsustainable current account deficits and ultimately to sharp exchange rate adjustment;

Similarly Rs3.13 trillion (27% of the increase) is on account of cash balances and SBP’s foreign exchange liabilities. It should not be interpreted as Debt because it is offset by cash balances of government and liquid assets of SBP.

The spokesman said that Rs4.11 trillion (35% of the increase) has been borrowed for financing of fiscal deficit, Rs 0.47 trillion (4% of the increase) has been borrowed by PSEs for spending on their financing needs, Rs 0.08 trillion (-1% of the increase) has been retired on account of commodity operations which is a welcome development, Rs 0.25 trillion (2% of the increase) is due to accounting adjustment due to difference in realized value and face value of long-term bonds issued during this period, Rs0.18 trillion (2% of the increase) has been borrowed by private sector from external sources which is a healthy sign indicating private sector’s capacity to borrow from abroad for domestic investments.