Pakistan government borrows PKR 650 billion amid economic crisis

NEW DELHI: The Pakistan government borrowed more than PKR 650 billion from banks to address its increasing expenses within a week, as reported by Dawn on Saturday.
The government's borrowing from commercial banks hit a historic high of PKR 5.5 trillion from July 1, 2023, to April 5, 2024 against PKR 2.95 billion in the same period of the previous fiscal year, as per data from the State Bank of Pakistan (SBP).
The economy is being heavily burdened by this extensive borrowing, as domestic debts leave no room for revenue allocation apart from interest payments. According to Dawn, the government is expected to allocate over half of the total budget towards interest payments.
In the fiscal year 2023, the government took loans amounting to PKR 3.7 trillion from banks. However, the present scenario appears concerning, with the government surpassing the previous year's amount by PKR 1.784 trillion in the initial nine months.
It is common for the government to heavily borrow from banks in the final quarter of a fiscal year to present a more favorable depiction of economic performance.
As per the Pakistan-based news daily, the economy is facing significant challenges internally and externally. The majority of the revenue generated is allocated towards servicing domestic debt and interest. This substantial outflow restricts the government from initiating new development programs; instead, a significant portion of the development funds are reallocated to other sectors.
The scenario is more dire on the external front, where borrowing is challenging due to Pakistan's diminished repayment capacity. Pakistan requires assistance from the IMF to enhance its reputation among foreign investors. However, the government has faced obstacles in borrowing from international markets over the past two years.
Financial experts have stated that the new agreement with the IMF could potentially 'open a window for Pakistan to borrow from the international market.' They also emphasize that 'time is required to sustain growth and remove major reasons for uncertainties.'
According to analysts' estimates, the current borrowing from banks may reach up to PKR 7 trillion by the conclusion of June 2024. A report from Dawn highlights that 'the government has been increasing energy prices but has not generated enough revenue to meet its expenditures.'