(MLN News) Pakistan’s economy, riddled with enormous debt, has very little avenues left to pay them back. The situation is getting dire with every day as maturities in trillions ensue. The means and methods historically employed to payback foreign debt have always been flawed. Since, the only method employed by the politicians at the economy’s helm has been more borrowing to pay off the previous loans.

As the old adage goes, history always repeats itself, we are well on our way to repeat the same mistakes of past. According to latest reports, the Federal Government of Pakistan is seeking record high borrowings worth Rs. 21.912 trillion to service its maturing public debt in the next financial year.

Demands for this amount have already been placed before the National Assembly on Monday under Article 82 (I) of the Constitution as “Charged Expenditures”, giving National Assembly the mandate to debate proposed spending bill but not the power to veto it.

The incumbent loans to pay off the maturing loans will be borrowed in the next fiscal year i.e. 2018 – 19. The maturities include principal and highly irregular amounts of interest payments as well.

According to State Bank of Pakistan, as of March 2018, Pakistan’s total central government debt stands at Rs. 23.343 trillion. Of the entire debt, Rs. 16.07 trillion is domestic, whereas, the remaining Rs. 7.27 trillion is foreign based. The foreign loans include long-term and short-term borrowings from foreign lenders.

Of the Rupees 22 trillion, the Federal Minister for Finance, Miftah Ismail, has demanded Rupees 1.4 trillion for servicing domestic debt, Rs. 601.8 billion for repayment of long-term foreign loans, Rs. 174.2 billion for repayment of short term foreign loans and Rupees 229.2 billion for interest on foreign loans.

Furthermore, Pakistan’s outstanding External Debt and Liabilities as of 31^st March, 2018 have already crossed the $91 billion mark. Of the total $91.761 billion external debt and liabilities, Government Central Debt – $62.937 billion – makes up for more than 68 percent of the entire debt. Whereas, the remaining debt comes from International Monetary Fund (IMF), Foreign Exchange liabilities, Public Sector Enterprises, Banks and Private Sector.

These foreign loans taken in haste were in retrospect poorly negotiated, and have been charged at phenomenally high rates by foreign lenders. The same has been the case with China-Pakistan Economic Corridor, which is a ticking time bomb for debt managers of the country. Borrowings under CPEC have also been agreed upon at extremely high rates. International Donor Agencies have repeatedly warned Pakistan of increasing debt stress and its looming consequences on the economy.

The current bout of borrowings by the Government does not only include foreign payments, but it is also required to fill up the budget deficit. Of the Rs. 1.89 trillion that is projected to be the budget deficit for the next fiscal year 2018-19, the government plans on bridging the gap via borrowings worth Rupees 1.55 trillion from the domestic market and Rupees 342.1 billion from the foreign market.

Barring the Rs. 1.62 trillion already earmarked for interest payments on foreign and domestic loans that in the recently announced budget (2018 – 19) of Rs. 5.247 trillion, consuming 31% of that portfolio, the remainder of debt servicing bill shall be borrowed directly from domestic and foreign markets.

However, this record borrowing leaves the government at the local banks’ mercy who are ready to exploit the situation to their benefit. As observed in the last few Pakistan Investment Bond Auctions, banks are unwilling to commit long-term and continue to pledge money in the shorter spans. Thus prompting State Bank of Pakistan to raise rates. Since, Government of Pakistan has only a few options to pick and choose from, it seems likely that the SBP would have to give in.

But Long term domestic debt has also reduced from Rupees 7.86 trillion in February 2018 to Rupees 7.35 trillion by March 2018, a 45.7% share of the domestic public debt down from the 55.2% share in March last year. This points to the shifting of government borrowings towards the State Bank of Pakistan, which may carry a serious risk of inflation due to the excess aggregate demand caused by an increase in money supply.