The government of Pakistan has exhibited a worrying trend in its reliance on bank borrowings, with recent data indicating a significant rise in debt accumulation.
For the six months leading up to December 2023 (6MFY24), the government’s borrowing from banks has escalated to Rs3.214 trillion, a stark increase from Rs1.019 trillion in the same period last year. This dramatic surge, amounting to 3.15 times the previous year’s figures, underscores a concerning escalation in the country’s borrowing levels.
This rapid accumulation of debt, equivalent to the entire fiscal year of 2023 within just six months, raises serious questions about the government’s fiscal responsibility and management. Typically, governments borrow from banks for various purposes, including bridging revenue-expense gaps, refinancing debt, rebuilding reserves, and funding public sector projects. However, the scale of borrowing in Pakistan’s case, particularly under the caretaker government, suggests potential challenges in fiscal planning and management.
Contradictions in Economic Performance
Despite the Federal Board of Revenue’s (FBR) impressive performance in tax collections, achieving over Rs1 trillion in December and surpassing the 6MFY24 target with a total collection of Rs4.468 trillion, the government’s substantial reliance on bank borrowing presents a paradox. This dependency on banks for additional funds, even with robust tax revenues, introduces a layer of complexity to the economic situation in Pakistan.
Adding to the economic concerns, the caretaker government’s authorization of only Rs300.904 billion out of a total allocation of Rs950 billion for social sector uplift projects in the first four months of FY24 points to a potential misalignment in fiscal strategy. Moreover, the high level of borrowing raises the prospect of an increasing Public Sector Development Programme, complicating the country’s economic trajectory and casting doubt on the effective allocation and expenditure of public funds.