Govt borrowing binge hits record Rs6 trillion in July-April

KARACHI: The government's borrowing from banks surged to a record around Rs6 trillion in the first 10 months of the fiscal year 2024, showing a 124.13 percent increase over the same period last year, according to figures released by the central bank on Wednesday.

Analysts forecast that a large budget deficit and limited options for external financing will keep borrowing demands high in the next fiscal year.From July 1, 2023, to April 26, 2024, the government borrowed Rs5.964 trillion from banks. In contrast, during the same period of the last fiscal year, that amount was Rs2.661 trillion. The latest data shows the government spent more than it received in taxes and other income, requiring it to borrow money from commercial banks at higher interest rates. This reflects the challenges faced by the current government, headed by Prime Minister Muhammad Shehbaz Sharif, in increasing tax revenue while dealing with a sluggish economy and losses incurred by state-owned enterprises.

The government is facing a major issue with the interest payments, which have increased due to high debt levels and the government's reliance on expensive domestic borrowing. Consequently, in the first nine months of FY24, the budget deficit was Rs3.902 trillion, or 3.7 percent of GDP, as opposed to Rs3.08 trillion, or 3.6 percent of GDP in FY23.

The Federal Board of Revenue's April tax collection fell about Rs63 billion short of its target. Against a target of Rs717 billion, the amount of revenue collected in April was Rs654 billion. It rose by 34.56 percent as compared to Rs486 billion in the same month the year earlier.“Government borrowed from commercial banks to fund its budget deficit and retire more than trillion of debt taken from SBP,” said Awais Ashraf, director of research at Akseer Research.

“We expect government borrowing needs to remain higher from commercial banks in the next year as well to fund elevated budget deficit amid subdued external financing arrangements,” Ashraf added.

“The budget deficit is expected to grow in fiscal year 2025 due to elevated interest payments and growing defense and pension expenses amid constraint revenue growth,” he said.The State Bank of Pakistan maintained its key interest rate at an all-time high of 22 percent last month. Nevertheless, there is hope for a decrease in inflation as evidenced by weekly sensitive price index data, which shows a consistent downward trend. The business community is questioning the delay in interest rate cuts despite the positive real interest rates. Anticipation is building for inflation figures in May, which are likely to reinforce expectations for rate cuts in June.

Pakistan's Finance Minister, Muhammad Aurangzeb, has expressed optimism about the decline in inflation in the upcoming months and anticipates interest rate cuts in near future.“The government is the largest beneficiary of monetary easing but at the same time central bank has to manage the external financing availability to ease the pressure on currency in order to avoid new bout of inflation,” Ashraf said.