Qudsia Bano

The recent data from the State Bank of Pakistan (SBP) unveils that government borrowing from banks in the current fiscal year (FY24) has skyrocketed sevenfold, reaching the total borrowed in the entire FY23. These worrying figures indicate potential economic challenges as the government grapples with an unprecedented surge in borrowing, reports WealthPK. From July 1 to Dec 8 in FY24, the government borrowed a staggering Rs3.585 trillion, marking a substantial increase from Rs516 billion borrowed in the same period last year. The total borrowing in FY23 amounted to Rs3.7 trillion, emphasizing the magnitude of surge in the current fiscal year. Despite a higher revenue growth, the government's aggressive borrowing approach has prompted banks to channel their maximum liquidity into risk-free papers. In a recent auction, the government received bids totaling Rs4.6 trillion, opting for Rs2.6 trillion from the pool, indicating the overwhelming demand for government securities.

Economic concerns intensify as reports suggest that the government is contemplating a reduction in the Public Sector Development Program (PSDP) to curtail expenditure. This move, however, appears contradictory in the context of elevated revenue collection and record borrowing, especially considering the vital role of development spending in fostering economic growth. The Federal Board of Revenue (FBR) reported surpassing targets for five-month and November collections; nevertheless, government spending has surged significantly, fueled by a staggering 29 percent inflation rate. Despite record-high inflation, the government's revenue has increased. As a result, analysts attributed rising spending to inflation's impact. The SBP data underscores the extent of government borrowing for budgetary support, revealing an alarming figure of Rs3.1 trillion from July 1 to Dec 8, compared to Rs1.1 trillion during the same period last year. Adding weight to the economic unease, an International Monetary Fund (IMF) report titled "Pakistan: Technical Assistance Report — Public Investment Management Assessment" concludes that Pakistan's PSDP is financially unsustainable.

The total cost of project completion is estimated at Rs10.7 trillion — over 14 times the budgeted allocation of Rs727 billion in the last fiscal year. Talking to WealthPK, Hamid Haroon, former economist at the World Bank, said the surge in government borrowing raised significant concerns about the fiscal health and economic stability of Pakistan. The sevenfold increase in borrowing in FY24 compared to the previous fiscal year indicates substantial reliance on debt to meet financial obligations. “The decision to contemplate a reduction in PSDP amid record borrowing appears contradictory, as development spending is crucial for economic growth,” he said. According to Hamid, the simultaneous challenges of surging inflation and increased government revenue point to a complex economic landscape, prompting questions about the sustainability of the current fiscal approach.

Credit: INP-WealthPk