Govt retires over Rs2tr debt during July-Nov

KARACHI: The government repaid more than Rs2 trillion in bank loans in the first five months of the fiscal year 2025, reducing its borrowing needs to finance the budget deficit.

Data from the State Bank of Pakistan (SBP), released on Tuesday, showed that between July 1 and November 29, 2024, the federal and provincial governments retired Rs2.018 trillion in debt to banks, including the SBP. This contrasts with Rs2.894 trillion borrowed during the same period last year. Additionally, Rs344 billion in loans was repaid to the SBP during this fiscal year.

The federal government repaid a total of Rs1.575 trillion to banks in July-November FY25, compared with Rs3.423 trillion borrowings during the same period last year. “The government reduced its borrowing by Rs2.2 trillion, supported by record dividends from the State Bank of Pakistan (SBP) and a prudent fiscal strategy,” said Awais Ashraf, director research at AKD Securities Limited.

“Meanwhile, credit extended by the banking sector to the private sector [non-government sector] rose by Rs2.4 trillion, with a significant portion directed towards non-banking financial institutions (NBFIs). Banks remain reluctant to seek deposits or aggressively increase lending to avoid taxes linked to their advances-to-deposits ratio (ADR),” Ashraf added.

During the period from July to November in FY25, banks lent Rs1.148 trillion to the private sector. However, private businesses repaid Rs33.2 billion in loans to banks during the same time frame last year. Lower interest rates and a steady rise in economic activity might have helped banks increase their lending to private companies and consumers in addition to the ADR tax push.

According to Ashraf, the money supply has contracted by 0.6 per cent so far this fiscal year, primarily due to a decline in both banking sector deposits and cash in circulation. The reduction in cash in circulation reflects the Special Investment Facilitation Council’s (SIFC) efforts to curb smuggling and enhance documentation.

In another development, the government plans to raise Rs7.6 trillion from the sale of Market Treasury Bills (MTBs) and Pakistan Investment Bonds (PIBs) during the period from December 2024 to February 2025. This funding will be used to finance the budget deficit and repay debt, according to the auction calendar released by the central bank on Tuesday.

The government aims to generate Rs3.80 trillion through auctions of short-term papers or Market Treasury Bills with maturities of three, six, and twelve months. Additionally, it plans to auction fixed and floating-rate Pakistan Investment Bonds (PIBs) with maturities of two, three, five, and ten years, to borrow another Rs3.8 trillion from commercial banks.The total maturity amount for T-bills and PIBs during the three months is projected to be Rs5.59 trillion.