47. Pakistan Economic Survey 2011-12 - Consultancy Services in ...

Public DebtDuring the year 2010-11, servicing of public debtamounted to Rs. 852.2 billion as opposed to abudgeted amount of Rs. 872.9 billion (Table 9.4).The saving of Rs. 20.7 billion has mostly been dueto stable dollar rupee parity; which reduced theamount used for interest and principal repaymentsof foreign loans in Rupee terms. Repayment offoreign loans stood at Rs. 154.2 billion as opposedto a target of Rs. 174.4 billion, while interestpayments on foreign loans, which were budgeted atRs. 76.8 billion, reached Rs 68.4 billion by end-June 2011. An amount of Rs. 629.7 billion wasspent on account of servicing of domestic debtagainst the budgeted estimate of Rs. 621.8 billion.The increase in domestic debt servicing is partlythe result of a tight monetary stance taken in orderto arrest the monetary overhang caused byprevious policies. As at the end of March 2012,servicing of the public debt stood at Rs. 719 billionagainst the budget amount of Rs. 1,034.2 billion.9.3 Domestic DebtPakistan’s domestic debt comprises permanentdebt (medium and long-term), floating debt (shortterm)and unfunded debt (made up of the variousinstruments available under the National SavingsScheme) having shares of 21.6 percent, 54.5percent and 23.9 percent respectively in totaldomestic debt. Banks’ preference of risk-freesovereign credit in view of mushrooming nonperformingloans augured well for the governmentsecurities market and overwhelming participationwas witnessed in the auctions of T-Bills, PIBs andGovernment Ijara Sukuk.The composition of major components shaping thedomestic debt portfolio has undergone atransformation from a high dominance of unfundeddebt to an increasing dependence on floatingcomponent of the domestic debt. The unfundedcategory comprising about 44.6 percent of theaggregate domestic debt stock in fiscal year 2002has declined to 23.9 percent by end March, 2012.Contrary to this, the share of floating debt to totaldomestic debt has reached 54.5 percent by end-March 2012 as compared with 31.4 percent infiscal year 2002 indicating an over reliance onshorter duration instruments i.e. 54.5 percent of thetotal domestic debt has the duration of 0.31 yearsat end March 2012 which is fairly low owing tomarket appetite for shorter duration reflectinginflationary expectations and higher interest ratesin the second half of the fiscal year 2012. Unduereliance on short-term sources of financing raisesthe rollover or refinancing risk for the government.Failure to issue new debt in order to mature a largeamount of outstanding short term debt may triggera liquidity or debt rollover crisis. The increase infrequency of such operations (due to their shortterm nature) coupled with any adverse rise ininterest rates may leave the government vulnerableto the high cost of debt. The trends in domesticdebt are discussed in the following graph:Fig-9.3 Trends in Permanent, Floating & Unfunded DebtRs. billion370032002700220017001200700200Permanent DebtFloating DebtUnfunded DebtFY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12-Q3129