KARACHI: The federal government has borrowed record money, over Rs760 billion, from scheduled banks during the first two months of the current fiscal year (FY23).

The latest data of the State Bank of Pakistan shows not only the increasing dependence of the government on banks’ money but that the cost of borrowing is also very high.

The federal government borrowed Rs760.4bn during July-Aug FY23 from banks, compared to Rs76.4bn in the same period of FY22.

However, the government has been borrowing at a very high rate from banks during FY23. The latest auction of treasury bills showed that the government borrowed at 15.99 per cent for three months; almost 1pc more than the policy interest rate. The two months’ main inflation is more than 27pc indicating that the SBP may opt for a further increase in the interest rate to counter the inflation. A further increase in interest rates means costlier borrowing for the government from banks.

The government’s budgetary borrowing is also showing that the limit has been crossed. The July-August budgetary borrowing reached Rs85.43bn compared to a net debt retirement of Rs232bn in the same period of FY22.

The government is already under severe pressure from flood losses, while economists and analysts estimate that the government needs huge liquidity to resettle the displaced people, build houses, extend loans to help the agriculture sector and provide support with cash to over 30 million flood-hit people across the country.

More borrowing is also expected since the government’s revenue will see a drastic reduction, particularly with the expected shrinking of economic growth.

According to the Ministry of Finance, the International Monetary Fund’s target of 3.5pc GDP growth in FY23 is unattainable; instead, a growth rate of 2.3pc is more realistic.

The government has yet to come up with a loss due to the flood, but initial estimates of losses are in the range of $10bn to $12bn.

Agriculture sector growth is expected to decelerate by 0.7pc from an annual plan of 3.9pc while industrial sector growth is estimated to come down by 1.9pc from an annual plan of 5.9pc. Post-flood service growth is expected to be 3.5pc, compared to a target of 5.1pc. All indicators point towards a lower economic growth rate that will create less revenue for the government and that will ultimately borrow more from banks.

While the external debt has created mounting pressure on the government, the country’s domestic debt has also taken a difficult shape. The central government debt, including domestic and external, rose by Rs6,799bn, while the debt stood at Rs50,503bn by July 31, 2022.

Published in Dawn, September 9th, 2022