KARACHI: The federal government’s total debt stock fell sharply by Rs 792 billion in September 2024, following the receipt of SBP’s profit, which helped the government to reduce its reliance on borrowing.
The State Bank of Pakistan (SBP) on Monday reported that despite the quarterly rise, the total debt stocks actually declined month-on-month by 1.12 percent or Rs 792 billion in September.
The federal government’s total debt stocks, including both domestic and external obligations, were Rs 70.362 trillion at the end of August 2024 and declined to Rs 69.570 trillion in September 2024.
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Analysts noted that this reduction in debt stocks was driven by the SBP’s record Rs 3.4 trillion profit in FY24, which was transferred to the federal government. This profit transfer provided critical fiscal relief and reduced the government’s dependence on domestic borrowing.
However, during the first quarter of this fiscal year (FY25), the federal government’s total debt stocks increased by Rs 656 billion to Rs 69.570 trillion by the end of September 2024, up from Rs 68.914 trillion at the end of June 2024.
The detailed analysis revealed that the main driver of debt growth was an increase in domestic borrowing. By the end of September, the government’s domestic debt has risen by Rs 362 billion, reaching Rs 47.536 trillion compared to Rs 47.160 trillion in June 2024.
External debt also experienced a modest increase, rising by Rs 280 billion in rupee terms over the first quarter, reaching Rs 22.024 trillion in September, up from Rs 21.754 trillion in June. The SBP noted slight fluctuations in the exchange rate, with the USD to PKR weighted average rate at Rs 278.3668 in June, marginally shifting to Rs 277.7488 by the end of September.
The country’s fiscal and primary balances have already posted surpluses of 1.4 percent and 2.4 percent of GDP, respectively, during the first quarter of FY25 mainly due to record high SBP profit, which substantially increased the government’s non-tax revenues.
With record SBP’s profit, the net budgetary borrowing from the banking system has also declined considerably as the government has reduced its borrowing from banks and also initiated buyback operations of its outstanding debt securities.
The lower government borrowing will also help to create additional room for banks to extend credit to the private sector.
The monetary policy committee of the SBP has also predicted that demand for private sector credit is likely to further pick up in the near future with easing financial conditions and expected increase in economic activity. In addition, banks may also extend advances to avoid additional tax on non-compliance of Advances-to-Deposit Ratio (ADR) thresholds.
The SBP believed that lower interest payments are creating a sizable fiscal space that would help keep a check on the overall fiscal deficit.
Copyright Business Recorder, 2024