ISLAMABAD - The government would have to pay additional Rs400 billion on interest payment on foreign loans during ongoing fiscal year mainly due to the sharp depreciation in local currency and increase in interest rate.

A top official of the ministry of finance said that interest payment on foreign and domestic loans could swell to Rs2 trillion in current fiscal year mainly due to the depreciation of currency and increase in interest rate. The interest payment would increase by whopping Rs400 billion in ongoing fiscal year as the government had allocated Rs1.6 trillion for interest payment for the entire current fiscal year.

“This is one of the main reasons for increasing in budget deficit,” he said. However, he rejected the estimates of the economists that budget deficit would increase to 7 percent of the GDP during the year 2018-19. “We are working to restrict it at below 6 percent of the GDP,” he added. The previous PML-N government had set Rs1.62 trillion for interest payment when dollar was at around Rs115 in April this year. Now, the amount of interest payment had gone to Rs2 trillion when a dollar is trading at Rs140.

It is worth mentioning here that the government had spent Rs876.7 billion on paying domestic and foreign debt servicing in just six months (July to December) period of the ongoing fiscal year. The break-up of interest payment showed that Rs752.098 billion was spent on domestic debt and Rs124.6 billion of the foreign debt. Meanwhile, the amount would further surge in next six months (January to June) due to the sharp rupee depreciation.

Spending on interest payment was higher as against to the other spending including defence and development in first six months of the ongoing financial year. Massive interest payment had pushed the country’s budget deficit to one trillion rupees in just six months. The country’s expenditures stood at Rs3.36 trillion as against the revenues of Rs2.33 trillion during the first half (July to December) of the ongoing fiscal (FY2019) year. The budget deficit was recorded at Rs1.03 trillion (2.7 percent of the GDP), according to the data of ministry of finance.

The government is struggling to restrict the budget deficit despite introducing two mini budgets in last six months. The Federal Board of Revenue (FBR) has faced massive shortfall of Rs230 billion in tax collection during July to February period of the year 2018-19 despite introducing mini budgets. The FBR had collected Rs2335 billion during eight months (July to February) of the ongoing financial year as against the target of Rs 2,565 billion. The government had upward projected the budget deficit to 6.3 percent of the GDP (Rs2.39 trillion) for the ongoing fiscal year as against the target of 5.1 percent of the GDP. The incumbent PTI led government had made the fiscal adjustment of 2.5 percent of GDP in September 2018 to restrict the budget at 5.1 percent of the GDP during FY2019.

This would be consecutive second year when interest rate would go beyond the targeted level. In last fiscal year 2017-2018, the government had allocated Rs1.3 trillion for interest payment. However, the amount had surged by Rs300 billion due to the sharp rupee depreciation. During last fiscal year, the government had spent Rs1.6 trillion on paying domestic and foreign debt servicing.