KARACHI: The federal government borrowed heavily from banks for budgetary support during the first 105 days of the current fiscal year.
The State Bank of Pakistan’s latest release on Tuesday showed that the government borrowed Rs608.5 billion from July 1 to Oct 14, 2022-23 against a net debt retirement of Rs37bn in the same period of last year.
The heavy borrowing was carried out despite higher revenue collections exceeding the target in the first quarter of the current fiscal year.
The revenue collection rose 17 per cent to Rs1,635bn in the July-September quarter exceeding the target of Rs1,609bn by Rs27bn.
The government has projected a Rs7.47 trillion target for the Federal Board of Revenue, which is considered challenging particularly while the government under the IMF programme is bound to control fiscal expansion, current account deficit and rising inflation.
The latest SBP data shows the government borrowed Rs800bn from banks during the first three and half months of the current fiscal year much higher than Rs94bn it borrowed in the same period of last year.
Financial experts said the revenue collection is so far good but would decline after the second quarter since the economy has been going slower than expectations.
Since the government under the IMF programme can’t go for higher spending and high inflation also demands to lower spending to get control over it. The fiscal tightening has already slowed down the economic growth rate which could be around 2pc as estimated by the IMF for FY23.
Banks provided Rs800bn during the 105 days also reflected the attraction of risk-free government papers with a high-interest rate of 15pc.
The high inflation is being controlled by increasing the interest rates and the practice is being used in developed economies like
Britain and the United States but both countries have been facing high inflation.
In FY22 the government borrowed Rs3,177bn for budgetary support which ultimately caused inflation. However, this year the government can’t go to this amount due to
an agreement with IMF which demands fiscal tightening. Also, very high inflation is the biggest hurdle for the government to increase spending.
Despite low economic growth, the government has set an ambitious target of Rs7.47tr, about Rs1,322bn more than the revenue collected in FY22.
Published in Dawn, October 26th, 2022