Rs2.983trn fiscal deficit financed through domestic debt
Rs2.983trn fiscal deficit financed through domestic debt

ISLAMABAD: The federal government mainly relied on domestic borrowing (debt market) to finance the fiscal deficit during the last fiscal year and Rs 2,983 billion or 64 percent fiscal deficit was financed through domestic debt.

According to Public Debt Bulletin & Annual Debt Review 2020-21, total public debt at the end of June 2021 rose to Rs 39,859 billion from Rs 36,399 billion in June 2020 following an increase of Rs 3,461 billion.

A few annual targets set for 2020-21 with respect to debt risk indicators were slightly missed mainly due to: (i) higher than envisaged federal fiscal deficit; (ii) lower than planned issuance of Sukuks due to unavailability of assets; (iii) net retirement in NSS stock mainly due to encashment of prize bonds; (iv) non-materialization of envisaged privatization proceeds; (v) running-off of existing external public debt portfolio and slightly higher mobilization from commercial sources (foreign commercial banks/Eurobonds); and (vi) the need to build the cash-buffer in anticipation of upcoming maturities.

Within domestic sources, major portion of additional funding was mobilised through long-term government securities. Within external sources, multilateral and commercial sources mainly contributed towards financing of federal fiscal deficit.

The reason behind the increase in the debt during the last fiscal year compared to a year before was federal primary deficit (Surplus) Rs 967 billion, interest on debt Rs 2,750 billion and others Rs 409 billion.

Around 73 percent of the net borrowing from domestic sources was through medium-to-long-term domestic debt and profile of domestic debt has improved significantly in the last few years. Short-term debt as percentage of total domestic debt has decreased to around 25 percent at end-June 2021 compared with 54 percent at end-June 2018.

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