Pakistan’s Bank borrowing reaches record Rs 8.56 trillion in FY24
Pakistan’s bank borrowing soared to a historic Rs 8.56 trillion in the
fiscal year 2023-24, marking a staggering 130 percent increase from the
previous fiscal year, according to official data.
The State Bank of Pakistan (SBP) reported that the federal government
borrowed Rs 3.72 trillion from commercial banks in the past fiscal year. This
dramatic rise in borrowing highlights the government's difficulties in managing
its fiscal operations. The primary use of these funds was to finance the budget
through the issuance of securities.
This surge in borrowing occurred despite persistently high-interest rates,
which remained at 22 percent throughout FY2023-24. The increased dependence on
bank borrowing underscores the fiscal strain faced by the government.
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borrowing from banks soars sevenfold to Rs3.585 trillion
Conversely, the government repaid Rs 608 billion to the SBP during
FY2023-24, a significant change from the Rs 196 billion borrowed in the
previous year. This repayment reflects an effort to decrease reliance on
central bank financing and aligns with broader economic stabilization
strategies.
Private sector borrowing also saw a notable rise, reaching Rs 368 billion in
FY2023-24, compared to Rs 208 billion the year before. This increase suggests
growing demand for credit, potentially driven by expanding business activities
and investments.
Fitch Ratings, in its latest report, noted that although Pakistan may fall
short of its ambitious budget targets, there is an expectation to reduce the
budget deficit from 7.4% of GDP in FY2023/24 to 6.7% in FY2024/25. This
anticipated reduction depends on the government’s adherence to current
policies, which could help secure a longer-term agreement with the
International Monetary Fund (IMF).
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lending to the private sector shows upward trend
However, Fitch Ratings cautioned that Pakistan's economic recovery remains
fragile. Additional economic shocks could significantly escalate the cost of
servicing the country’s large government debt. The outlook remains uncertain,
given the precarious fiscal situation and the need for substantial reforms.
The record level of bank borrowing reflects broader challenges in Pakistan’s
fiscal management. High borrowing costs, driven by elevated interest rates, add
to the fiscal burden. The government's reliance on commercial bank borrowing to
address its budget deficit may not be sustainable if economic conditions
worsen.
The rise in private sector borrowing, while indicative of increased economic
activity, also suggests that businesses are facing higher financing costs. This
could impact profitability and investment decisions, potentially slowing
economic growth if credit becomes less accessible or more expensive.
The shift from central bank loans to commercial bank borrowing may also be
an attempt to diversify financing sources. However, this approach carries
risks, particularly if the government struggles to rollover existing debt or
secure new financing on favorable terms.
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government seeks Rs8.5 trillion in loans from banks to address budget shortfall
Pakistan’s record bank borrowing in FY2023-24 underscores the severe fiscal
challenges the country faces. As the government navigates high-interest rates
and a fragile economic recovery, effective fiscal management and adherence to
economic reforms will be crucial for stabilizing the economy and achieving
sustainable growth.
As policymakers work towards reducing the budget deficit and managing debt
levels, maintaining economic stability and addressing structural weaknesses
within the fiscal framework will be critical. The upcoming fiscal year will be
pivotal in shaping Pakistan’s economic trajectory and its ability to manage
both domestic and external financial pressures.
Source: pkrevenue.com