KARACHI: The government borrowings from banks for budgetary support surged by almost four times during the first four months of the current fiscal year.

Data released by the State Bank of Pakistan (SBP) on Thursday showed that the government borrowed Rs2,363.7 billion from July 1 to Nov 10 period of the current fiscal year against Rs507.8bn in the corresponding period last year, registering a staggering increase of 365.5 per cent.

Caretaker Finance Minister Shamshad Akhtar assured on several occasions that tax collections were within target and hoped to achieve the revenue target for the current fiscal year. However, the huge borrowings from the banking system indicate a steep liquidity shortage.

Since the beginning of this fiscal year, the government has been borrowing at the highest rate of over 22pc which has further swelled the cost of debt servicing. The government went beyond expectations when it borrowed money at 25pc at the auction of market treasury bills held on Sept 6.

For three-, six- and 12-month T-bills the cut-off yields were 24.49pc, 24.78pc and 25pc, respectively. This rise in T-bill returns fuelled speculations about the imminent hike in the SBP policy rate but the central bank surprised the market by leaving the benchmark lending rate steady at 22pc.

The SBP data showed that the government’s overall borrowings from scheduled banks swelled by 292pc to Rs3,244.5bn during a little over four months period against Rs827bn in the same period last year.

Banks have been making record profits through investments in risk-free government papers which are high-yielding bonds. However, the increased borrowing cost has slashed the spending on development projects. At the same time, the borrowing by the private sector has also gone down.

The government allocated Rs7.3tr for debt servicing during the current fiscal year but analysts believe that it could be around Rs8tr at the end of the year.

Despite high inflation, the SBP remained unmoved and kept the interest rate unchanged as any increase in it would increase the debt servicing cost while any decrease could be counterproductive for inflation.

Published in Dawn, November 24th, 2023