Government borrowing soars 103pc to record Rs5.736 trillion in 10 months

KARACHI: The government borrowed a record Rs5.736 trillion from banks in the 10 months through April 19, a 103 percent increase from the same period last year, according to State Bank of Pakistan data.

These borrowings stood at Rs2.819 trillion in July-April FY 2023.

Increased borrowing highlights the nation's substantial cash requirements to cover the budget deficit and to pay for the growing interest payments on its debt.

The government has had to borrow more money from banks to meet its expenditure needs because of the limited external financing.

On Tuesday, Pakistan received $1.1 billion from the International Monetary Fund as the final tranche of a $3 billion loan programme. The country is seeking a fresh long-term extended fund facility agreement with the global lender as the stand-by arrangement expired in April.

In the first nine months of the current fiscal year, Pakistan's fiscal deficit climbed by 27 percent year-on-year to Rs3.9 trillion, according to official figures. The primary balance was Rs1.6 trillion or 1.5 percent of the gross domestic product.

The Federal Board of Revenue collected Rs6.7 trillion in taxes between July and March of FY 2024, up 30 percent from the same period a year earlier, while total revenue increased by 41 percent year-on-year to Rs9.8 trillion.

Because borrowing is expensive, the government must use a substantial amount of its revenue stream to pay interest on its domestic debt.

The State Bank of Pakistan maintained its tight monetary policy stance and left the policy rate at a record 22 percent for the seventh consecutive time on Monday, citing concerns about potential inflationary risks.

There's a chance of higher inflationary pressures because of the impending budget and expected economic reforms from the IMF programme, analysts say.

The SBP is waiting to consider cutting rates until it sees a steady decline in inflation.

The SBP may decide not to lower rates even in June 2024, when the next policy review meeting is scheduled for early June, in order to gain more clarity on how the budget and actions taken to meet the IMF demands will affect inflation statistics. As a result, rate cut expectations may have to wait until the fourth quarter of 2024.

Delays in rate cuts may cause secondary market rates in the debt markets to fluctuate, especially for treasury bills and Pakistan Investment Bonds with one-year tenors and longer. T-bill yields were unchanged in Tuesday's auction.

The government borrowings remained higher but bank lending to the private sector remained weak. Bank credit to the private sector fell to Rs456.27 billion in July-April FY 2024 from Rs230.3 billion in the same period of the last fiscal year.

The broad money (M2) growth increased to 17.1 percent year-on-year in March from 16.1 percent in February 2024.

The increase in M2 was primarily attributed to an expansion in net foreign assets on the back of improved foreign exchange reserves and increased net budgetary borrowing from commercial banks, according to the SBP’s monetary policy statement.