Karachi, December 7, 2023 – The government’s borrowing from banks has witnessed a substantial increase, surging by 154 percent during the first four months of the current fiscal year.
Data released by the State Bank of Pakistan (SBP) on Wednesday reveals that government bank borrowing reached Rs 2.89 trillion from July 1 to November 24, 2023, compared to Rs 1.14 trillion in the same period of the previous fiscal year.
The government relies on commercial banks to secure funds and bridge budget deficits, utilizing various financial instruments such as market treasury bills and Pakistan investment bonds. The staggering increase in borrowing indicates the scale of financial requirements to meet the country’s fiscal obligations.
With official data signaling a significant rise in government borrowing, concerns are growing about the impact on the economy and financial markets. The government’s reliance on this form of financing has sparked discussions among economists and financial experts about the sustainability of such a borrowing trajectory.
The latest data also suggest that the government’s borrowing needs are anticipated to further escalate in the coming months, especially in light of the scheduled announcement of general elections in February 2024. Elections often lead to increased government spending, adding to the already substantial financial requirements.
During the fiscal year 2022-23, the government borrowed a total of Rs 3.72 trillion. The current pace of borrowing, if sustained, could potentially surpass the figures from the previous fiscal year, signaling a growing financial burden on the national exchequer.
While the government has increased borrowing, it is noteworthy that it has also retired a substantial amount of debt. Between July 1 and November 24 of the current fiscal year, the government retired Rs 217 billion to the SBP. This figure, while significant, is lower than the retirement of Rs 463 billion during the corresponding period of the previous fiscal year.
The combination of massive government borrowing and higher interest rates has left the private sector with limited options. Faced with the tightening financial landscape, the private sector has not sought fresh loans during the review period. Instead, it has focused on retiring existing loans, with an amount of Rs 91 billion retired compared to borrowing Rs 17.38 billion in the same period of the last fiscal year.
The evolving financial landscape presents challenges for both the public and private sectors. As the government continues its borrowing spree to meet fiscal obligations, the impact on interest rates, inflation, and overall economic stability remains a subject of keen observation. Financial experts and policymakers will closely monitor these trends to make informed decisions as the fiscal year progresses.
