Pakistani government seeks Rs8.5 trillion in loans from
banks to address budget shortfall
In the November to January period, the government aims to
secure Rs8.5 trillion in loans from banks to address its budget shortfall,
which has seen a modest improvement owing to increased revenue generation and
reduced spending.
The State Bank of Pakistan revealed that a significant
portion of this borrowing will be carried out through Market Treasury Bills
with varying maturities, including three, six, and twelve months.
As per the central bank's auction calendar, approximately
Rs6.061 trillion will be raised through short-term paper auctions.
Additionally, the federal government plans to borrow Rs2.44 trillion from
commercial banks through Pakistan Investment Bonds (PIBs) featuring both fixed
and floating interest rates.
Government's
plan to secure Rs11.09 trillion from banks
These planned borrowings for the November to January period
are lower than the Rs10.66 trillion scheduled for the October to December
timeframe. This decrease can be attributed to improved revenue collection and
reduced government spending needs.
Furthermore, there is an expectation of a timely and
successful conclusion of the $3 billion loan program review by the
International Monetary Fund, which is anticipated to open up opportunities for
bilateral and multilateral financing. This is likely to reduce the government's
reliance on domestic borrowing.
The State Bank of Pakistan, in its recent monetary policy
statement, reported positive fiscal indicators in the first quarter of the
fiscal year, including a lower fiscal deficit of 0.9 percent of GDP, improved
from 1.0 percent, and a surplus in the primary balance of 0.4 percent, up from
0.2 percent the previous year. This improvement can be attributed to enhanced
revenue collection and controlled spending, with the Federal Board of Revenue
(FBR) reporting a 24.9 percent growth in revenue compared to the same period in
the previous year.
Pakistan
raises a massive Rs 2.14 trillion through Treasury Bills auction
Non-tax revenues also saw a significant increase, primarily
due to higher petroleum development levy collection driven by rising rates.
Meanwhile, total expenditures remained at the previous year's levels, thanks to
substantial reductions in subsidies and grants. The government's continued
reliance on bank borrowing is a result of high interest rates, increased
spending, and limited access to foreign funding. As banks have invested
significantly in government securities, they are currently enjoying substantial
returns on their investments, resulting in reduced lending to the private
sector.
The growth of broad money (M2) slowed to 12.9 percent at the
end of September from 14.2 percent at the end of June 2023, primarily due to a
continued decline in private sector credit and a reduction in commodity
operations financing. Similarly, reserve money growth has decreased since June,
primarily due to a significant slowdown in the growth of currency in
circulation. This has been balanced by an expansion of the Net Foreign Assets
(NFA) of the State Bank of Pakistan and the banking system, resulting from
significant foreign exchange inflows in July, while Net Domestic Assets (NDA)
have contracted. This has led to an improved composition of both M2 and reserve
money.
The report also suggests that planned fiscal consolidation
and anticipated external inflows are expected to create room for increased
credit to the private sector and improvements in the NFA of the banking system.
The State Bank of Pakistan, in its latest monetary policy
statement, has maintained its tight monetary stance, keeping the policy rate at
22 percent. Despite high inflation readings in September, the decision is based
on the expectation of a decline in inflation from October onward, driven by
improvements in economic indicators. Some analysts suggest that the State Bank
of Pakistan may consider initiating monetary easing early in the next year.
Source: The News