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Govt Borrowing Surges 130% to Rs8.564 Trillion in FY24

The government’s borrowing from banks more than doubled in the fiscal year 2023-24 due to significant financial needs to meet the budget deficit and higher debt interest payments.

According to figures released by the State Bank of Pakistan on Tuesday, the government borrowed Rs8.564 trillion from banks between July 1, 2023, and June 28, 2024. This amount is more than double the Rs3.716 trillion borrowed during the same period of the previous fiscal year, representing a substantial increase of 130.46 percent.

Analysts attribute this surge in borrowing to the government’s need to retire debt owed to the State Bank of Pakistan to meet International Monetary Fund (IMF) requirements and to finance expanding budgetary needs. Despite considerable efforts to increase revenue as outlined in the budget, analysts predict that government borrowing will continue to rise at a similar rate in FY25 due to the escalating cost of debt servicing.

For FY25, the government plans to borrow Rs7.68 trillion locally through government securities and Rs0.66 trillion through external financing, including commercial and Eurobond loans. The jump in borrowing reflects the government’s worsening financial situation, driven by low revenue and rising expenditure ratios relative to gross domestic product (GDP).

Pakistan’s government debt rose to Rs67.8 trillion in the eleven months of FY24, ending on June 30, after borrowing significant amounts to cover growing spending needs due to low revenue. From July to May FY24, the government added Rs6.976 trillion, or 11.46 percent, to the total debt, with domestic debt increasing by 19 percent to Rs46.2 trillion.

The substantial budget deficit, maturing debt repayment, and rising interest rates have forced the government to rely heavily on domestic borrowings to fund its budgetary needs. The government generally spends more than it collects in taxes, creating a shortfall filled by borrowing, which must be repaid at high interest rates.

In response to the beginning of a decrease in inflation amid tight policies and slow growth, the State Bank of Pakistan lowered its benchmark interest rate for the first time in four years. On June 10, the central bank cut the policy rate by 150 basis points to 20.5 percent.

 

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