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Friday March 29, 2024

Government borrows Rs1.8trn from banks in July-April

By Our Correspondent
April 23, 2021

KARACHI: The government borrowing from the banking sector rose 1.78 percent in more than nine months of this fiscal year mainly due to the financing of the budget deficit.

The government borrowed Rs1.821 trillion from commercial banks during July to April 9 of FY2021, compared with Rs1.789 trillion in the corresponding period of last fiscal year, according to latest figures on monetary aggregates from the State Bank of Pakistan.

The government borrowing from banks remained higher since last fiscal year owing to the huge spending to fight the coronavirus pandemic.

The closure of the central bank’s window for the government borrowing under the International Monetary Fund loan program also led to the rise in borrowing from the banking sector.

The government made a sizable retirement of Rs1.508 trillion to the SBP as of April 9, compared with Rs627 billion in the same period last year.

The credit to the private sector increased 17 percent to Rs399.7 billion in the period under review, but the banks’ investment in the risk-free government securities remained higher.

Banks’ outstanding investment in the government debt securities rose to Rs10.1 trillion at the end of January 2021 from Rs8.791 a year ago.

The government aims to raise Rs4.7 trillion through borrowing from market treasury bills and Rs825 billion from Pakistan Investment Bonds in the April-June 2021 period to meet its funding requirements.

The budget deficit increased to Rs1.4 trillion in July-December of the current fiscal year. The deficit as a percentage of GDP stood at 2.5 percent.

The World Bank expects the budget deficit to remain elevated at 8.3 percent of GDP this fiscal year.

The IMF said the maturity structure of Pakistan’s public debt has improved, and it is poised to improve further with the authorities’ multi-pronged efforts, in turn lowering the gross financing need (GFN) in the medium term.

The FY2020 GFN remained below the previously projected level due to a lower fiscal primary deficit than assumed in the RFI approval, and lower interest payments and amortizations resulting from the Debt service suspension initiative (DSSI).

The GFN is expected to further decrease in FY 2021 thanks to the extension of the DSSI and the authorities’ successful efforts in lengthening the maturity profile of domestic debt, it said.

“With SBP financing no longer available, the government has managed to secure ample financing primarily from domestic commercial banks, through the issuance of short-term T-Bills and long-term PIBs denominated in domestic currency,” IMF said.

This has brought down the GFN from 36.7 percent of GDP in FY 2019 to an estimated 28.9 percent of GDP in FY2021. Further medium-term efforts are crucial to lowering GFNs to a projected 15.8 percent of GDP in FY 2026, according to the IMF. These include fiscal discipline and revenue mobilization, better cash flow management through a treasury single account, establishment of a central debt management office and a successful implementation of the medium-term debt strategy, particularly by continuing to lengthen the maturity profile of debt, and diversifying instruments and the investor base (especially by scaling up Shariah-compliant instruments).