KARACHI: The government borrowed a record amount from banks at record high prices, which ate up 76 per cent of the tax revenue during the first nine months of the current fiscal year.

The latest data released by the State Bank on Tuesday reveals that the present government has been borrowing heavily from banks despite the fact the cost of money is at its peak.

The SBP reported that the government borrowed Rs5.736 trillion during July-April FY24 while it paid Rs5.517trn as markup on borrowing during July-March FY24.

It shows the gravity of the situation. Borrowing made during the current fiscal year was not entirely borrowed by the present government, but by the previous caretaker government as well. The latter is equally responsible for this massive borrowing.

A payment of Rs5.5tr as markup eats up 76pc of tax revenue

At the last auction of treasury bills on April 30, the average cutoff yields for three, six and 12 months papers were 21 per cent. This 21 per cent return on borrowings is a real debt trap, forcing the government to borrow more for interest payment.

The State Bank did not have the courage to cut interest rate fearing inflationary pressure, while ignoring the cost of negative growth or extremely poor growth expectations during this fiscal year.

Further calculations showed that the markup paid during the first nine months of the current fiscal year was equal to 76 per cent of the tax revenue. The amount of markup paid (Rs5.517trn) was almost equal to borrowing made during July-April FY24 (Rs5.735trn) — an alarming situation indeed as markup amounted to more than 56 per cent of the total revenue.

The government’s borrowing has enriched commercial banks as they the prime lenders and earned a whopping 100 per cent profit last year.

The data reveals that interest payments on debt in FY23 amounted to Rs5.935tr, compared to Rs3.331tr in the previous fiscal year. The GDP’s size in FY23 significantly rose to Rs84.657tr, compared to Rs66.623tr in FY22.

Borrowing unlimited

In FY24, the country has projected to spend around Rs7.3trn on debt servicing, including both interest and principal amounts. This constitutes 50.5pc of the total budget outlay of Rs14.46trn.

The latest data shows the government has crossed all limits this year as the total borrowing in FY23 was Rs3.716tr while in FY22 it was Rs3.448trn. But the figures for the first nine-and-a-half months of the current fiscal has already reached a staggering Rs5.736 trillion — twice the amount the government borrowed in the same time period of last year (Rs2.819trn).

Bankers said the government needs hundreds of billions just to start commodity operations. The government borrows from banks for commodity operations every year, but this year there has been net debt retirement of Rs329.3 billion.

In FY23 and FY22, the total borrowings for commodity operations were Rs352bn and Rs229.6bn respectively. The prices of wheat crashed in Sindh and Punjab because the government did not borrow any money for procurement of the commodity.

Published in Dawn, May 2nd, 2024