KARACHI: The government has set a record for borrowing from banks in the first six months of the current fiscal year, surpassing the total borrowing in the entire FY23.

This intense borrowing has not only burdened the economy with debts but has also restricted the private sector’s access to banking funds.

According to the latest data from the State Bank of Pakistan, the government borrowed Rs4.284 trillion from banks during July-Dec FY24, exceeding the total borrowing of Rs3.716tr in FY23.

In the first six months of FY23, borrowing was limited to Rs280 billion, showing substantial growth in the second half of the same year.

The banks in Pakistan have ample liquidity but are unable to utilise it, except for investing in government papers. The 22 per cent policy rate makes it impossible for the trade and industry to survive with these high returns on borrowed money.

In the auction held on Wednesday, investors offered Rs2.8tr to buy treasury bills. Mostly, banks invested in T-bills, reflecting high liquidity. At the same time, it also indicated that banks were eager to place their money in T-bills before the interest rate falls.

While there is no visible sign of an imminent interest rate reduction in the next monetary policy, analysts speculate about a potential rate cut. Some experts attribute the rate cut possibility to the inflation trend, which noted a 29.7pc increase in the CPI index in December 2023.

However, the government borrowed just Rs283bn from the auction, leaving the situation open to speculation about the next policy rate.

The government has been borrowing heavily during FY24 from banks despite higher revenue collections.

Published in Dawn, January 12th, 2024