Amir Khan

The government has embarked on a borrowing spree of unprecedented proportions, shelling out a staggering 76% of tax revenue to service its debt during the first nine months of the ongoing fiscal year (9MFY24). Talking to WealthPK, Aamir Nazir Gondal, an additional finance secretary at the Finance Division, underscored the consistent utilisation of bank resources by the current administration despite exorbitant costs. Statistics disclose a substantial borrowing amount of Rs5.736 trillion from July to April of FY24, accompanied by a staggering mark-up payment of Rs5.517 trillion from July to March within the same fiscal year. "Despite mounting pressure, the State Bank's reluctance to slash interest rates has further exacerbated the predicament, prioritising inflation concerns over the perilous economic downturn," he pointed out. He highlighted that the treasury's persistent borrowing has yielded alarming outcomes, exemplified by the recent auction on April 30, where average cut-off yields surged to a formidable 21%.

"Such elevated borrowing expenses perpetuate a perilous cycle wherein the government borrows primarily to fulfil interest obligations, thereby ensnaring itself in debt." The gravity of the situation becomes glaringly apparent when considering that the mark-up payment for the first nine months of the current fiscal year equated to a staggering 76% of tax revenue. This mammoth sum, amounting to Rs5.517 trillion, nearly mirrors the borrowing made during the same period, emphasising the crippling burden of interest payments, which accounted for over 56% of total revenue. In fiscal terms, the figures are equally ominous, with interest payments on debt inflating to Rs5.935 trillion in FY23, compared to Rs3.331 trillion in the preceding fiscal year. This stark escalation has occurred against the backdrop of a ballooning GDP, underscoring the economic fragility exacerbated by unchecked borrowing.

Looking ahead, projections paint a bleak picture, with an estimated expenditure of Rs7.3 trillion earmarked for debt servicing in FY24, constituting a staggering 50.5% of the total budget outlay. Talking to WealthPK, Amjad Mahmood, another additional finance secretary at the Finance Division, emphasised that the trajectory of borrowing paints a grim reality, with the government surpassing all previous benchmarks. "Borrowing in the initial nine-and-a-half months of the current fiscal year has already exceeded Rs5.736 trillion, doubling last year's borrowing during the same timeframe." "The implications ripple beyond the financial sector, with the absence of borrowing for commodity operations culminating in a crash of wheat prices in key agricultural regions." He stressed that as the fiscal year progresses, concerted efforts to stem the tide of borrowing and chart a path toward sustainable economic recovery become increasingly imperative.

Credit: INP-WealthPk