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One-third of Pakistan's budget is consumed by interest payments

Just Earth News | @justearthnews | 25 Jun 2021

One-third of Pakistan's budget is consumed by interest payments

Image: Wikipedia Creative Commons

Islamabad: Pakistan's fiscal condition seems to be in trouble as it was revealed recently that interest payments consume one-third of the country's budget.

Finance Minister Shaukat Tareen in the National Assembly on June 12 announced the fiscal 2021 federal budget of 8.48 trillion rupees ($54 billion).

Interest payments on debt, which are expected to grow by 3.9% from the ongoing fiscal year, account for 3.06 trillion rupees, or 36% of budget expenditures. In contrast, the government is only spending 600 billion rupees on subsidies and 100 billion rupees for COVID-19 vaccinations and emergencies, reports Nikkei Asia.

Pakistan is also witnessing devastating COVID-19 pandemic waves which have hit not only the health but also the financial conditions of people.

The budget also reveals a deficit of 3.99 trillion rupees. The federal government plans to borrow 3.74 trillion rupees to finance this deficit, which makes up 94% of the deficit, reports Nikkei Asia.

Hasaan Khawar, a public policy analyst based in Islamabad, told the newspaper that Pakistan borrows heavily not only to finance current expenditures but also to service existing debt.

"Pakistan is having a primary fiscal deficit. That's why the [International Monetary Fund] has been demanding a primary budget surplus so that it starts reducing debt."

Khawar, who is also the team leader of the Sustainable Energy and Economic Development Program for Khyber Pakhtunkhwa Province, told Nikkei Asia that borrowing can only be sustainable if the interest rate is lower than the return on investment, a strategy that would help the economy to grow.

He said that over the last couple of years, development spending has been reduced to meet fiscal targets set up by the IMF, which has hindered projects that directly affect people's welfare.