KARACHI: The government’s borrowing from banks stood at Rs2.037 trillion from July 1 to Aug 11, significantly higher than Rs255 billion in the comparable period last year, the central bank data showed, while credit to the private sector continues to paint a grim picture.

On top of that, the government borrowed Rs2.073bn in the auction held on Aug 23, which is not included in the State Bank data released earlier this week.

The government has set a Rs8.25tr borrowing target through the auction of treasury bills during the 70 days from Aug 9 to Oct 18.

This massive borrowing will cost the government heavily as the liquidity requirement for domestic debt servicing would eat up most of the budget.

Credit to private sector remains dismal amid high interest rate, economic woes

The government’s budget estimates for the current fiscal year show that an amount of Rs7.3tr will be required for debt serving. The higher interest rate and the rupee’s steep devaluation will put an additional burden on the government.

On the other hand, the borrowing trend is almost negative for the private sector, which saw a net retirement of debt worth Rs189bn

from July 1 to Aug 11 compared to Rs99.5 bn borrowing in the year-ago period.

The private sector’s borrowing was in good shape in the 2021-22 fiscal year at Rs1.612tr, but it plunged to 87pc to Rs211bn in the previous (2022-23) fiscal year.

As of Aug 11, the total stock of government borrowing from scheduled banks stood at Rs20.38tr, more than double the private sector’s Rs8.98tr.

Bankers argue that the slow economic growth does not require private-sector borrowing while domestic investment has come to zero.

Another key reason bankers cite for the dismal private sector borrowing is the high interest rate, which they say has made lending for banks risky and costlier for the private sector.

Trade and industry representatives have already announced that doing business at this cost was impossible.

Published in Dawn, August 26th, 2023