Between May 15 and June 28 of the fiscal year 2023-24, the Pakistani government borrowed approximately PKR 3.2 trillion from scheduled banks, which averages out to about PKR 71.8 billion per day, according to Dawn.
Government’s Increased Borrowing Despite Higher Revenue
This substantial borrowing comes despite a 30 percent increase in revenue generation compared to the previous year. The current government’s heavy borrowing indicates high levels of spending. At the same time, the newly announced budget for the upcoming fiscal year seeks to increase revenue by 40 percent over the previous year, primarily through higher taxation, as reported by Dawn.
Despite these plans for increased revenue, there appears to be minimal effort from the government to reduce spending in order to avoid further borrowing. The total borrowing from scheduled banks has reached a record high of PKR 8.564 trillion during FY24, which is more than double the PKR 3.716 trillion borrowed in FY23.
Interestingly, the PKR 3.2 trillion borrowed over the last 45 days of FY24 is almost equivalent to the entire borrowing amount for FY23. These borrowings come with a significant cost, as the current interest rate stands at a steep 22 percent, according to Pakistani news sources.
Domestic Debt and Economic Pressures
Over the past year, the Pakistani government has borrowed a substantial PKR 6.55 trillion to manage domestic debt. As the government engages in ongoing negotiations with the International Monetary Fund (IMF), it has been calling on the nation to prepare for further sacrifices. However, there is a notable reluctance to reduce its lavish spending.
The economy is under considerable strain, with fixed investments hitting a 50-year low. Development programs are being continuously cut, and the high 22 percent interest rates have nearly halted the private sector’s borrowing from banks. As a result, the economic growth rate has slumped to a mere 2.38 percent.
Looking ahead, the government has set a growth target of 3.5 percent for FY25. However, given the increasing debt servicing liabilities, high interest rates despite low inflation, and a downturn in private sector economic activity, it seems unlikely that economic managers will meet this target.
Recent Treasury Bill Auction and Loan Adjustments
In a recent treasury bill auction, the government raised PKR 442 billion against a target of PKR 150 billion on Wednesday. Additionally, the government has slightly reduced interest rates on short-term loans: the rate for three-month loans decreased by 0.1 percent to 20.04 percent, while the rate for six-month loans dropped by 0.18 percent to 19.78 percent. The 12-month loan interest rate remains unchanged at 18.54 percent. Overall, the government borrowed a total of PKR 454.7 billion (approximately USD 1.9 billion) through these loans, with PKR 87.4 billion of that borrowed via a non-competitive process.
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