KARACHI: During the first nine months of the current fiscal year, the government borrowed a record amount at record high rates from banks, accounting for 76% of the tax revenue.
According to the State Bank’s most recent data, which was made public on Tuesday, the current government has been borrowing a lot from banks even though interest rates are at an all-time high.
According to the SBP, the government borrowed Rs5.736 trillion from July to April of FY24 and paid Rs5.517 trillion in interest during the July to March period of FY24.
It conveys the seriousness of the circumstance. The current administration borrowed money during the current fiscal year, although the prior caretaker government also borrowed money. The latter bears equal blame for this enormous borrowing.
A Rs5.5 trillion markup payment consumes 76% of tax revenue
The average cutoff yield for three, six, and twelve month Treasury Bills at the most recent auction on April 30 was 21%. The government is forced to borrow additional money to pay interest due to this 21% return on borrowings, which is a true debt trap.
The State Bank ignored the cost of negative growth or extremely low growth prospects during this fiscal year, and lacked the guts to decrease interest rates out of fear of inflationary pressure.
Subsequent computations revealed that the markup paid in the first nine months of the current fiscal year amounted to 76% of the tax collection. The amount of markup paid (Rs5.517 trillion) was nearly equal to the amount borrowed (Rs5.735 trillion) from July to April of FY24. This is concerning because markup accounted for more than 56% of total revenue.
Commercial banks have benefited greatly from government borrowing since they are the primary lenders and made an astounding 100% profit last year.
According to the data, interest payments on debt were Rs5.935 trillion in FY23 as opposed to Rs3.331 trillion in the previous fiscal year. The GDP increased dramatically to Rs84.657tr in FY23 from Rs66.623tr in FY22.
Unlimited borrowing
The nation estimates that it would spend about Rs7.3 trillion on debt servicing in FY24, covering principle and interest payments. This makes up 50.5 percent of the Rs14.46 trillion total budgetary expenditure.
According to the most recent figures, the government’s borrowing in FY23 was Rs3.716tr, compared to FY22’s borrowing of Rs3.448trn, indicating that this year it has exceeded all boundaries. However, as of the first nine and a half months of the current fiscal year, the government has borrowed an astounding Rs5.736 trillion, which is twice as much as it did during the same period last year (Rs2.819trn).
According to bankers, the government need hundreds of billions of dollars to launch commodity activities. Every year, the government borrows money from banks to fund commodity operations; however, this year, Rs329.3 billion has been paid off in net debt.
The total amount borrowed for commodity activities was Rs229.6 billion in FY22 and Rs352 billion in FY23. Because the government did not borrow any money to buy the product, wheat prices in Sindh and Punjab collapsed.
