Govt borrowing from banks surges sevenfold to Rs3.585trn in 5MFY2023-24

In the initial five months of the current fiscal year, the government’s borrowing from banks has surged sevenfold, reaching the total borrowed in the entire FY23, according to recent data from the State Bank of Pakistan (SBP).

From July 1 to Dec 8 FY24, the government borrowed Rs3.585 trillion, a substantial increase from the Rs516 billion borrowed in the same period last year. The total borrowing in FY23 amounted to Rs3.7 trillion.

Despite higher revenue growth, the government’s aggressive borrowing has led banks to invest their maximum liquidity in risk-free papers. In the latest auction on Dec 13, the government received bids totaling Rs4.6 trillion, selecting Rs2.6 trillion from the pool.

To curtail expenditure, there are reports that the government is contemplating a reduction in the Public Sector Development Programme (PSDP). This move appears contradictory given the elevated revenue collection and record borrowing, as development spending is crucial for economic growth.

While the Federal Board of Revenue (FBR) reported exceeding the targets set for the five-month and November collections, government spending has risen significantly, fueled by a 29 percent inflation rate.

Despite grappling with record-high inflation, the government’s revenue has also increased. Analysts attribute the rising spending to inflation’s impact, creating a challenging situation for the government.

SBP data reveals that the government borrowed Rs3.1 trillion for budgetary support from July 1 to Dec 8, compared to Rs1.1 trillion during the same period last year.

A Dec 7 report from the APP indicates that the federal government has authorized the utilization of Rs302.6 billion for various social sector uplift projects under PSDP, out of a total allocation of Rs940 billion for July-November 2023-24. However, the fund utilization is lower than anticipated.

Media reports suggest that the caretaker government has decided to terminate 137 development projects under the PSDP, valued at Rs116 billion.

An IMF report titled “Pakistan: Technical Assistance Report — Public Investment Management Assessment” concludes that Pakistan’s PSDP is financially unsustainable, with the total cost of project completion reaching Rs10.7 trillion—over 14 times the budgeted allocation of Rs727 billion in the last fiscal year.