Join our Whatsapp channel

       KARACHI: Amid falling tax collections, the federal government’s borrowing from banks plunged 84 per cent during the first seven and half months of the current fiscal year.

       The latest data released by the State Bank on Tuesday showed that the government is far from the volume of borrowings made during the last fiscal year.

       The federal government borrowed Rs658 billion from July 1 to Feb 14 FY25 compared to Rs4.044tr in the same period of last fiscal year.

       The government is trying to reduce its debts while facing a drastic drop in revenue collections. However, this shortfall would compel the government to borrow more from banks at the end of this fiscal year.

       The tax shortfall widened to Rs606bn in the first eight months of 2024-25. An IMF mission is currently in Pakistan to review macroeconomic indicators. Finance Minister Mohammad Aurangzeb claims that the country is in a good position to negotiate for the next tranche of $1.1bn out of the total loan package of $7bn. However, the government would miss the revenue target of Rs12.97 trillion set for FY25.

       When the policy rate was unprecedented at 22pc, the government borrowed Rs8.591 trillion from banks in FY24, doubling their profits mainly due to risk-free investments in government securities. The interest rate dropped to 12pc, and the government’s borrowing plunged.

       Banks pumped massive liquidity into the private sector during the second quarter of FY25, but the data showed that it was short-term lending.

       The government’s borrowing from banks in FY23 and FY22 were Rs3.716tr and Rs3.448tr, respectively.

       The government has allocated Rs8.736tr for domestic and Rs1.038tr for foreign debt servicing, which will eat up Rs9.774tr in FY25.

       The low borrowing from banks may help the government to remain within the limit suggested by the IMF for fiscal deficit.

       Published in Dawn, March 5th, 2025