KARACHI: In a positive turn on the economic front, borrowings by both the federal and provincial governments for budgetary support have shown a remarkable decrease, with a record payoff of over Rs 2 trillion in the first five months of the current fiscal year (FY25).
This sharp reduction signals a significant shift in the government’s fiscal strategy, bolstered by the transfer of the SBP’s healthy profits of Rs 3 trillion to the federal government, which has created a financial cushion for the government to retire outstanding borrowings from commercial banks.
Economists said that this development is a positive sign, suggesting improved fiscal discipline, and is likely to have a favorable impact on the country’s overall financial stability moving forward.
Budgetary support: Jul-Aug borrowing drops 58pc to Rs660.3bn YoY
According to the State Bank of Pakistan (SBP), the federal and provincial governments’ borrowing from scheduled banks for budgetary support experienced a significant decline with Rs 2.018 trillion retirement during July-November of FY25 as against borrowing of Rs 2.89 trillion in the same period of the previous fiscal year (FY24).
The detailed analysis reveals that the federal government has retired a significant amount of budgetary borrowing from scheduled banks, while made some fresh borrowing from the SBP.
The federal government repaid an amount of Rs 1.575 trillion to scheduled banks during July to Nov 2024, compared to Rs 3.4 trillion budgetary borrowing during the same period in FY24.
Additionally, the federal government borrowed Rs 31.6 billion from the SBP for budgetary support in the first five months of this fiscal year, compared to Rs 450 billion retirement to SBP in the corresponding period of FY24.
During the period under review, cumulatively provincial governments retired an amount of Rs 449 billion including Rs 351 billion to SBP and Rs 98 billion to scheduled banks.
The Balochistan government returned a loan of Rs 35 billion and Khyber Pakhtunkhwa Rs 110 billion to the State Bank. The Sindh government repaid Rs 106 billion and the Punjab government Rs 99 billion to the SBP during July to Nov of FY25.
The statistics also show that banks are aggressively increasing their lending to the private sector in order to achieve an Advance to Deposit Ratio (ADR) of 50 percent, thus avoiding additional taxes imposed by the federal government.
As a result, credit to the private sector surged to Rs 1.148 trillion in the first five months of this fiscal year, a significant contrast to a retirement of Rs 33.2 billion during the same period last year
Meanwhile, on Tuesday, the State Bank issued two auction calendars for the sale of short-term and long-term government papers to borrow Rs 7.6 trillion for the federal government during the next three months (Dec 2024 to Feb 2025). An amount of Rs 3.8 trillion will be raised against the sale of 3-month, 6-month and 12-month Market Treasury Bills (MTBs).
In addition, an amount of Rs 3.8 trillion will be borrowed through sale of long-term Pakistan Investment Bonds (PIBs) during the next three months.
Copyright Business Recorder, 2024
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