Pakistan Faces Financial Strain Amid Record Borrowing

Pakistan's government borrowed PKR 3.2 trillion from scheduled banks in 45 days of FY 2023-24. Despite a revenue increase, high spending persists. The record borrowing comes at a 22% interest rate, stressing the economy. Fixed investments hit a 50-year low, and private borrowing halts.

Pakistan's government has borrowed approximately PKR 3.2 trillion from scheduled banks between May 15 and June 28 of the fiscal year 2023-24, averaging 71.8 billion PKR per day, as reported by Dawn. This borrowing spree occurs despite a 30% increase in revenue compared to the previous year.

The government's reliance on borrowing indicates significant spending. The newly announced budget aims for a 40% revenue increase, mainly through higher taxes. Although the government hints at more taxation, efforts to reduce spending and avoid borrowing are minimal.

Government borrowing from scheduled banks reached a record PKR 8.564 trillion during FY24, far exceeding the PKR 3.716 trillion borrowed in FY23. The borrowing in the last 45 days of FY24 nearly equaled the total borrowing of FY23, incurring a steep interest rate of 22%, according to local reports.

To manage domestic debt payments totaling PKR 6.55 trillion, the government relies on substantial borrowing. Despite urging sacrifices amid IMF talks, there’s a reluctance to curb lavish expenditure.

The economy faces severe strain, with fixed investments plunging to a 50-year low. The government has trimmed development programs, and high interest rates of 22% have nearly halted private sector borrowing, constraining growth to 2.38%.

The government has set a 3.5% growth target for FY25. However, escalating debt servicing, high interest rates despite low inflation, and a sluggish private sector make achieving this target unlikely. Through a recent auction of treasury bills, the government raised PKR 442 billion against a target of PKR 150 billion.

The government has slightly reduced short-term loan interest rates: three-month loans dropped by 0.1% to 20.04%, and six-month loans decreased by 0.18% to 19.78%. The 12-month loan rate remained at 18.54%. Overall, PKR 454.7 billion was borrowed, with PKR 87.4 billion through a non-competitive process.