In a fiscal year characterized by unprecedented borrowing and soaring debt servicing costs, the Pakistani government is grappling with significant financial challenges amid economic uncertainties and inflationary pressures, Dawn reported.
“The government’s borrowings in the first 11 months of the outgoing fiscal year have exceeded the combined figure of the two preceding fiscal years,” economic data revealed, highlighting the scale of financial commitments.
From July 2023 to June 7, 2024, the government’s borrowing amounted to PKR 7.39 trillion, surpassing the combined borrowings of PKR 7.16 trillion in the previous two fiscal years (FY23 and FY22).
Bankers speculate that total borrowings for FY24 could reach PKR 8 trillion by June 30, driven by increased spending despite cuts to development budgets in favor of other expenses.
The extensive borrowing has significant implications, limiting the government’s ability to fund crucial development projects. Instead, a large portion of tax revenues is allocated for debt servicing, a trend expected to continue into the next fiscal year, according to Dawn.
“The government would spend PKR 7.21 trillion on domestic debt servicing and an additional PKR 1.04 trillion on foreign debt servicing, taking the total to PKR 8.25 trillion,” stated the budget document for FY2023-24. This figure is projected to rise to PKR 9.77 trillion for debt servicing in FY25.
Despite projections for increased revenue generation, economic experts remain doubtful about achieving ambitious tax collection targets. “Economy experts believe that the government will not achieve the PKR 12.97 trillion tax collection target set for FY25,” citing concerns over past targets being missed, including the PKR 9.41 trillion target for FY24.
High interest rates, recently reduced but still around 20.5 percent, have polarized opinions within the business community. “The business community also finds this rate high and is demanding that it be brought down close to the inflation rate,” as inflation levels stood at 11.8 percent in May, prompting calls for interest rates to be lowered to 13-14 percent.
“This excessive borrowing practically makes it impossible for the government to spend money on development projects,” lamented a banker, underscoring the imbalance between public sector investments and private sector participation, Dawn reported.
