Reducing Government Debt A key element in the strategy for preventing rapid accumulation of debt is to manage the budgetary process in such a way that the size of the primary deficit is restricted to near zero. The interest rate on domestic debt has a U-shaped curve, falling steadily from the peak of 15 percent in 2009-10 to a low of 8.9 percent in 2017-18, largely in line with the fall in the rate of inflation. Thereafter, it has risen to 11 percent. The path of the effective interest rate on external debt is one of a persistent increase from 1.8 percent in 2009-10 to almost double at 3.5 percent in 2018-19. This reflects the underlying changes in the composition of external debt. Increasingly, there has been resort to commercial borrowing and flotation of bonds opposed to concessional multilateral and bilateral long-term borrowing. 12.5. Projection of the Level of Government Debt The projection of the level of Government Debt as percentage of GDP has been derived up to 2024-25 and presented in Table 12.5, based on the macroeconomic projections in Chapter 1. The share of external borrowing in financing the budget deficit in coming years is expected to decline due to increased debt repayment. Table 12.5: Projection of the Level of Government Debt External Debt Domestic Debt Level% of (Rs in billion) GDP 2020-21 12274 25.7 Level (Rs in billion) 25644 % of GDP 53.8 2021-22 14218 25.7 28433 51.4 (% of GDP) Total Government of Debt* Level (Rs in billion) % of GDP 36868 77.3 42374 76.6 2022-23 16296 26.0 31257 49.8 46780 75.0 2023-24 18624 26.2 34309 48.2 51936 73.0 2024-25 20250 26.4 37563 46.6 56311 70.0 Source: Estimated by projections in Chapter 1 and Chapter 11.* Excluding cash balances Therefore, subject to implementation of the recommended policies, the level of Government debt will gradually decline from 77.3 percent of the GDP in 2020-21 to 70 percent of the GDP in 2024-25. External debt is expected to rise as percent of GDP while domestic debt will decline as percentage of the GDP. 125