The caretaker government led by Prime Minister Anwaarul Haq Kakar has recently achieved a dubious milestone by borrowing nearly Rs4 trillion from banks, further worsening Pakistan’s already precarious economic situation. Despite surpassing revenue targets in the initial six months of the fiscal year, this unprecedented borrowing highlights significant challenges the government is grappling with, including high inflation and sluggish economic growth.
Data from the State Bank of Pakistan reveals a staggering increase in borrowing, with Rs3.99 trillion borrowed from July 1 to Jan 19, 2023-24, representing a 185% rise compared to the same period last year. The government consistently exceeding revenue targets for half a year raises questions about the necessity for such desperate borrowing. Sources attribute this paradox to the average inflation of over 28% in the first seven months of the fiscal year, leading to increased government revenues. However, these inflationary pressures are also driving up government spending, necessitating substantial borrowings to cover rising expenses.
A concerning aspect of this borrowing spree is the high associated cost, with returns on this debt standing at about 21%, posing a significant burden on an economy already struggling with its existing debt load, which consumes over 50% of the budget for debt servicing. The government’s failure to address this issue, as acknowledged by a senior banker, paints a grim picture of fiscal mismanagement.
Compounding economic challenges is the impending general elections scheduled for 8th February. The prevailing uncertainty surrounding the elections acts as a deterrent for potential investors, further dimming the prospects for economic growth. Analysts predict that political uncertainties during this period will discourage both domestic and foreign investments, as stakeholders remain cautious in the face of a high-stakes electoral landscape.
The poor performance of the economy, with a projected GDP growth of about 2% for FY24 according to the IMF, coupled with the central bank’s inability to provide cheaper money for growth, paints a bleak picture for the future. With a base rate of 22%, the cost of money is prohibitively high, making profitability for ventures challenging.
Pakistan’s record borrowing underscores the deep-rooted economic challenges confronting the country. The government’s inability to control borrowing costs, coupled with looming political uncertainties, presents a grim outlook for economic growth. Urgent and effective measures are needed to address these issues and guide the economy towards a more sustainable and prosperous path.
