KARACHI: Within a week, the government borrowed over Rs650 billion from banks to meet its rising expenditure, reflecting the consequence of high inflation.
The State Bank of Pakistan (SBP) data showed that the government’s borrowing from commercial banks reached a record Rs5.5 trillion from July 1 to April 5, 2023-24. This is against Rs2.95bn in the same period last fiscal year.
Only last week as reported by the SBP on April 13, the government’s borrowings from the commercial banks were Rs4.842tr. It shows during a week the government borrowed Rs657bn to reach Rs5.5tr.
This massive borrowing is overburdening the economy, with the domestic debts not leaving space for revenue allocation other than interest payments. The government will have to pay more than half of the total budgetary outlay in interest payments.
During FY23, the government borrowed Rs3.7tr from banks, but the current situation looks alarming as the government has exceeded last year’s level by Rs1.784tr in the first nine months.
The government usually borrows heavily from banks in the last quarter of a fiscal year to paint a better picture of the economic performance.
The economy is in serious trouble on both internal and external fronts. The maximum revenue generated is used to pay back the domestic debt and interest. This considerable outflow does not leave space for any government for new development programmes; instead, most of the development funds are slashed for other sectors.
The situation is even worse on the external front, where borrowing is difficult as Pakistan’s repayment capacity has been reduced to the lowest level. Pakistan needs IMF help to restore its image for foreign investors, but for the last two years, the government has been unable to borrow from international markets.
Financial experts believe that the new agreement with the IMF may open a window for Pakistan to borrow from the international market. However, they believe time is required to sustain growth and remove major reasons for uncertainties.
Analysts estimate that the current borrowing from banks could touch Rs7tr by the end of June 2024. The government has been increasing energy prices but has not generated enough revenue to meet its expenditures.
Published in Dawn, April 20th, 2024
