Bank borrowing by government drops
to 78% in July 2024
The federal government significantly
reduced its borrowing from banks, recording Rs145.34 billion between July 1 and
July 26, a sharp 78.37% decline from the Rs671 billion borrowed during the same
period last year, according to the latest data from the State Bank of Pakistan
(SBP).
This reduction provides some relief
to the government by easing the domestic debt servicing burden. Although one
month’s figures may not indicate a long-term trend, if the government continues
to curb borrowing and if interest rates continue to fall, it could further
alleviate the domestic debt load.
In FY2024, Pakistan successfully
limited its budget deficit to 6.8% of GDP, or Rs7.2 trillion, down from 7.7%,
or Rs6.5 trillion, in the previous year. The primary balance also improved,
showing a surplus of 0.9% of GDP compared to a deficit of 1.0% in FY2023.
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to secure Rs. 6 trillion from banks in next three months
This fiscal discipline was achieved
through increased petroleum levies, central bank profits, and reduced development
expenditures.
However, despite these positive
developments, managing the country’s debt remains a significant challenge,
particularly due to the high cost of interest payments. Last fiscal year, the
government borrowed a record Rs8.5 trillion from banks, up from Rs3.72 trillion
in FY2023.
In response, the SBP has reduced its
key interest rate by 100 basis points to 19.5% last month, marking the second
consecutive rate cut and bringing the total reduction to 250bps since June.
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borrowing from banks soars sevenfold to Rs3.585 trillion
Despite these efforts, Pakistan's
debt sustainability risk remains high due to substantial financing needs and
challenges in securing external funding. The government has received
commitments from China, Saudi Arabia, and the United Arab Emirates to roll over
debt for a year and is awaiting final approval for a new $7 billion loan
program from the International Monetary Fund.
In July, despite signs of economic
stabilization and the start of monetary easing, no new borrowing from the
private sector was recorded. Instead, businesses paid off Rs327 billion in bank
loans, compared to Rs171.12 billion in the same month last year.
Source: Profit Pakistan