Boom in bank borrowings to bridge Budget deficit

The Treasury has resorted to a higher degree of bank borrowings to bridge the budget deficit so far overshooting the original full year estimate by two times, whilst the country’s external debt has reached a staggering $ 19 billion or Rs. 2.47 trillion.

As per information revealed in the 2012 Mid Year Fiscal Report, Treasury had obtained Rs. 132 billion in bank borrowings between January and April to meet the budget deficit. The figure is a 106% rise from the corresponding period of last year as well as the original estimate of Rs. 64 billion announced in Budget 2012 in November last year. Bank borrowings had accounted for 46% of the total deficit financing.

The reliance also comes midst bank interest rates remaining relatively high during the period under review. Non-bank borrowings had declined to Rs. 67 billion, from Rs. 90.4 billion whilst foreign financing had swelled by 411% to Rs. 87 billion. However, it is within the full year estimate of Rs. 175 billion.

As per the Mid Year Fiscal Report, interest payments on foreign and domestic debt amounted to 39% of total recurrent expenditure or Rs. 173.6 billion up 22% over the first four months of 2011.



“The increase in domestic market interest rates on government securities and the depreciation of the rupee against major foreign currencies, which increased the interest payments on foreign currency denominated debt, were the major reasons for this increase,” Treasury said.

To substantiate the rise in interest rates Treasury said yield of 364-day Bills had risen by 5.27% between 2011 April and 2012 April, and for the 91-day Bills it was 4.9% and 4.19% on 182-day Bills.

At the end of April 2012, the total outstanding external debt of the Government is US$ 18.9 billion.

Total debt service payment from January to April 2012 amounted to US$ 378.4 million. Of this, $ 216.3 million was for principal payments and the balance $ 162.1 million was for the interest payments. The total estimated debt service payments for 2012 was $ 1,630 million, of which 23% has already been paid by 30th April 2012.

At the end of April 2012, the total outstanding external debt of the Government is US$ 18.9 billion. This includes outstanding only for loans obtained to finance development projects and international bond issues.

Total debt service payment from January to April 2012 amounted to $ 378.4 million. Of this, $ 216.3 million was for principal payments and the balance $ 162.1 million was for the interest payments. The total estimated debt service payments for 2012 was US$ 1,630 million (includes the debt service payments of international sovereign bond issues), of which 23% has already been paid by 30 April 2012.

Comparatively a year earlier total external debt of the Government as at end April 2011 stood at US$ 16.9 billion. The total debt service payment up to 30 April 2011 amounted to US$ 369.8 million. Of this, US$ 211.1 million was for principal payments and the balance $ 158.7 million was for the interest payments. The total estimated debt service payments for 2011 was $ 1.03 billion, of which 36% has already been paid by 30 April 2011.

The Government debt operations indicated a total gross borrowing of Rs. 556.1 billion during the first five months of 2012. The repayments of Government debt, both domestic and foreign, amounted to Rs. 283.8 billion thus limiting net borrowings to Rs. 272.2 billion during this period.

Borrowings via Treasury Bonds were Rs. 329.5 billion or 69% of the total. This excluded Rs. 60 billion bonds issued to capitalise CPC dues. Rs. 120 billion had been borrowed via Treasury Bills.