Govt. debt off target


Public debt management has gone awry with the government seeking to increase foreign borrowings above the budgeted targets while domestic debt remains sluggish, with much depending on whether the government would meet the 6.2 percent of GDP budget deficit target this year.

Total outstanding debt of the government reached Rs. 6,161 billion as at end July 2012, the Central Bank said last week, growing by Rs. 1,027.6 billion during the seven month period this year. According to the 2012 budget, the government’s borrowing limit for the full year is Rs. 1,104 billion, the Central Bank said.

According to the 2012 budget, the government’s debt requirement for 2012 was Rs. 776.2 billion from domestic sources and Rs. 327.8 billion from external sources. However, by end July 2012, the domestic debt component grew by Rs. 381.6 billion from end December 2011 while foreign debt surged by Rs. 646 billion.

The estimates are based on expectations that the budget deficit would reach 6.2 percent by the year’s end. However, by end July the deficit reached 5.56 percent of GDP. Both GDP estimations were before the Central Bank downgraded growth from 8 percent to 7.2 percent and now 6.8 percent.

Last year, the government could not stick to the borrowing plan.

"The actual total borrowing was maintained within the gross borrowing limit approved by the Parliament and stood at Rs. 994.1 billion in 2011. The composition of the 2011 borrowing, however, deviated from the original plan. Accordingly, the share of gross borrowings from foreign sources was reduced to Rs. 322.8 billion compared to the initial plan of Rs. 338.9 billion while the total funds borrowed from domestic sources in 2011 was increased to Rs. 671.3 billion against the initial plan of Rs. 658.1 billion," the Central Bank said in a recent report on public debt management.

Of the domestic debt, the EPF, ETF and National Savings Bank were heavily used as captive sources, accounting for more than 96 percent of issued bonds.

The government is resorting to foreign borrowings as resources available in the domestic financial market were not sufficient, the Central Bank said.

"With the expected reduction in the budget deficit, it is aimed to bring down the ratio of foreign currency debt to total debt from the current level of 44.1 percent to 30 percent by 2016," the Central Bank said.

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