KARACHI: Rising cost of money has failed to stop the flow of credit to loss-making public sector enterprises (PSEs), as they have borrowed a record Rs142.3 billion this fiscal year so far.
The 20 per cent policy interest rate has made it impossible for investors to enter new ventures and increased the government’s domestic debt servicing.
However, loss-making state firms, already causing the economy to bleed, have received record money from banks. The latest data released by the State Bank of Pakistan showed that the credit to state-owned firms reached Rs142.3bn during the first eight months (July to February) of the current fiscal year.
This is surprising since the credit to public sector enterprises during the same period a year ago was just Rs2.5bn. The government announced austerity measures earlier this year to cut its spending, but no plan has been devised so far to get rid of the losses or the loss-making PSEs.
The amount of credit to the public enterprises during the current fiscal year is astonishing since there was no credit in the previous fiscal year. Instead, a net withdrawal of Rs43.3bn was noted. In the 2020-21 fiscal year, the net withdrawal was Rs53.77bn.
The government is making efforts to generate more revenues and it increased taxes on petroleum products, food products and many other products, while the general sales tax also increased to 18pc.
The highest revenue is being generated through GST since the 30pc inflation has increased the prices of each item being sold in the markets. High costs of products yield higher revenue for the government.
However, the loss-making public entities have been ignored in this regard, and their debts and liabilities reached 1.972 trillion by the end of December 2022, an increase of Rs187bn during a year. The debts of the PSEs alone increased by Rs134.9bn to Rs1474.3bn during the first half of the current fiscal year.
The first half-yearly report of the State Bank shows that Pakistan International Airline (PIA) was the biggest borrower with Rs186.6bn until the end of December. Such huge outstanding domestic debt of PIA was critical for the economy, which has been facing immense pressure of revenue shortfall and record high inflation.
The cost of bank borrowing is too expensive, particularly for the PSEs like PIA, which adds billions of rupees each year as losses to its outstanding debts. No data is available about foreign borrowing made by PIA.
The second-biggest outstanding debt was of the Water and Power Development Authority (Wapda), which rose to Rs71.9bn. Pakistan Steel owes Rs41.9bn in debt.
The government has borrowed 1.961tr from banks for budgetary support from July to March 3 this fiscal year.
This borrowing is almost three times Rs618.7bn, the amount it borrowed during the same period a year ago.
Published in Dawn, March 19th, 2023
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