The federal government’s borrowing from banks dropped sharply by 84 per cent in the first seven and a half months of the current fiscal year, reflecting a significant shift in financial strategy amid declining tax revenues.
According to the latest figures released by the State Bank of Pakistan on Tuesday, the government has borrowed Rs658 billion from July 1 to February 14 of the fiscal year 2024-25, a stark contrast to the Rs4.04 trillion borrowed during the same period last year.
This drastic reduction in borrowing comes as the government attempts to manage its debts while facing a substantial shortfall in tax collections. However, this dip in revenue could push the government to increase borrowing later in the fiscal year to cover the deficit.
In the first eight months of FY25, tax collections fell short by Rs606 billion. Meanwhile, an International Monetary Fund (IMF) team is in Pakistan to review the country’s economic performance.
Finance Minister Mohammad Aurangzeb expressed optimism, stating that Pakistan is in a favourable position to negotiate the next instalment of $1.1 billion from the $7 billion loan package. Despite this, the government is likely to miss its ambitious revenue target of Rs12.97 trillion for FY25.
Last year, when the policy interest rate was as high as 22 per cent, the government borrowed Rs8.59 trillion from banks, resulting in hefty profits for financial institutions due to risk-free investments in government securities. As interest rates dropped to 12 per cent this fiscal year, the government’s borrowing has significantly reduced.
During the second quarter of FY25, banks injected substantial funds into the private sector, although most of this lending was short-term. In comparison, the government’s borrowing in previous years stood at Rs3.72 trillion in FY23 and Rs3.45 trillion in FY22.
For FY25, the government has set aside Rs8.74 trillion for domestic debt servicing and Rs1.04 trillion for foreign debt, totalling Rs9.77 trillion. The lower borrowing from banks may assist the government in staying within the fiscal deficit limits recommended by the IMF.
