Islamabad, June 8, 2023: The Pakistan Economic Survey 2022-23 disclosed on Thursday that in the absence of external financing, Pakistan relied on internal resources to meet its budget deficit, placing significant pressure on domestic commercial banks.
During the period from July to March of FY2023, government borrowing for budgetary support increased to Rs 2,414.5 billion, compared to Rs 938.5 billion in the same period last year. Similarly, budget deficit financing from domestic sources amounted to Rs 3,761.5 billion during July-March FY2023, as opposed to Rs 1,584 billion in the corresponding period of the previous year.
Consequently, net government borrowing from the banking system stood at Rs 2,389.7 billion, a significant increase from the borrowing of Rs 883.4 billion recorded during the same period last year.
The economy is facing numerous challenges due to rising government borrowing costs and capital outflows, which have intensified fiscal and balance of payment pressures.
In order to control persistent inflationary pressures and address external sector imbalances, the State Bank of Pakistan (SBP) continued with monetary tightening, resulting in a cumulative increase of 725 basis points in the policy rate during July-April FY2023.
During July-March FY2023, broad money (M2) experienced an increase of Rs 1,193.7 billion (4.3 percent growth) compared to Rs 698.4 billion (2.9 percent growth) in the same period last year. Within M2, the Net Foreign Assets (NFA) of the banking system decreased by Rs 2,060.6 billion, whereas it declined by Rs 1,197.7 billion in the previous year.
Conversely, the Net Domestic Assets (NDA) of the banking sector increased by Rs 3,254.2 billion, compared to Rs 1,896.2 billion during the same period last year. Private sector credit increased by Rs 302.3 billion during July-March FY2023, a significant drop from Rs 1,199.3 billion in the same period last year.
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On average, private sector credit recorded a growth rate of 3.3 percent, in contrast to the growth of 15.7 percent in the previous year. Sluggish domestic economic activities contributed to the discouragement of private sector credit offtake during July-March FY2023.
A contraction in loans was observed in both working capital and fixed investment loans during the period under review. Working capital loans amounted to Rs 113.4 billion during July-March FY2023, compared to Rs 608.7 billion in the same period last year. Likewise, fixed investment loans decreased to Rs 147.5 billion, down from Rs 333.1 billion in the previous year.
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