Govt retires Rs2.03trn debt in first half of FY2024-25 amid liquidity boost

Debt repayment marks shift as Rs2.7 trillion inflows from SBP strengthen exchequer

 The government retired Rs2.03 trillion in debt during the first half of the current fiscal year 2024-25, ending December 31, reflecting improved liquidity in the national exchequer. 

This marks a reversal from the Rs2.875 trillion net borrowing recorded during the same period last year, according to State Bank of Pakistan (SBP) data for July 1 to December 13.

Experts attribute this unprecedented debt repayment to Rs2.7 trillion in profit inflows from the SBP, which bolstered the government’s finances. Historically, governments have relied heavily on bank borrowings for budgetary support, making this repayment a notable shift in fiscal management.

However, the government’s borrowings from banks for budgetary support turned negative during the first half of the current fiscal year.

The debt retirement occurred despite the Federal Board of Revenue (FBR) falling short of its collection target during the first five months of FY25. The government is expected to resort to borrowing in the second half of the fiscal year to cover the shortfall and maintain fiscal discipline.

In FY24, government borrowings for budgetary support had doubled to Rs7.479 trillion compared to Rs3.748 trillion in FY23, contributing to a fiscal deficit of 6.8% of GDP, or Rs7.206 trillion. The revised fiscal deficit for FY24 rose to 7.4% of GDP, highlighting the pressure on public finances.

For FY25, the government aims to reduce the fiscal deficit to 5.9% of GDP, or Rs7.283 trillion, within a total budget outlay of Rs18.9 trillion. This includes revenue receipts, non-bank and bank borrowing, net external receipts, and privatisation proceeds. The government has also set an economic growth target of 3.6%.

As of June 2024, the total borrowing stock for budgetary support stood at Rs29.723 trillion, underscoring the need for prudent fiscal management to avoid further economic strain.

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