Karachi, April 11, 2024 – Official data reveals a staggering surge in government borrowing from the banking system, soaring to Rs 4.84 trillion during the initial nine months (July – March) of the fiscal year 2023-24.
This marks a colossal 138 percent increase compared to the corresponding period in the previous fiscal year.
The State Bank of Pakistan (SBP) disclosed that the federal government’s borrowing during this period spiked significantly from Rs 2.03 trillion to Rs 4.84 trillion, painting a concerning picture of the nation’s fiscal health.
Government borrowing primarily occurs through the sale of treasury bills and Pakistan Investment Bonds (PIBs) to the banking system. However, the banks themselves are driven to invest heavily in these government securities due to the unprecedentedly high interest rates set by the central bank.
Over several months, the SBP has maintained the policy rate at a staggering 22 percent, a measure aimed at curbing inflationary pressures. However, this high-interest environment has inadvertently stifled industrial growth, resulting in limited credit uptake within the private sector.
In accordance with state laws, the government refrains from direct borrowing from the SBP. Consequently, there has been a substantial repayment of Rs 333 billion to the central bank during the first nine months of the current fiscal year, in contrast to borrowing amounting to Rs 829 billion during the same period in the last fiscal year.
The significance of this surge in borrowing becomes apparent as it surpasses the total borrowing for the entirety of the previous fiscal year. In fiscal year 2022-23, the government accumulated loans amounting to Rs 3.72 trillion.
The relentless borrowing from the banking system has had a profound impact on the government’s fiscal performance, raising concerns about its repayment capacity, particularly in the face of mounting external debt. By June 2023, the stock of bank borrowing had soared to a staggering Rs 18.35 trillion, further exposing vulnerabilities in the government’s ability to meet its financial obligations.
This unprecedented level of borrowing poses significant challenges for the government’s fiscal management in the near future. With the accumulation of both domestic and external debt reaching alarming levels, urgent measures may be required to ensure financial stability and sustainable economic growth in Pakistan.
