Pakistan Government Borrows Record Rs5.736 Trillion from Banks at High Interest Rates

The Pakistani government has borrowed a record Rs5.736 trillion from banks at high interest rates during the first nine months (July-April) of the current fiscal year 2023-24. This massive borrowing accounted for 76% of the tax revenue collected during the same period, highlighting the government's heavy reliance on debt to finance its operations.

The high borrowing costs, with average yields for treasury bills ranging from 21% for 3-12 months, have intensified Pakistan's debt challenges. Debt servicing consumed a staggering 76% of the government's tax revenue, with interest payments totaling Rs5.517 trillion in the first nine months of FY24. This figure is almost equal to the sum borrowed during the same period.

The data reveals a significant increase in interest payments, rising from Rs3.331 trillion in FY22 to Rs5.935 trillion in FY23. Looking ahead to FY24, the government is expected to spend approximately Rs7.3 trillion on debt servicing, which constitutes over half of the total budget of Rs14.46 trillion.

Why this matters: Pakistan's reliance on high-interest borrowing to finance government operations has created a vicious cycle of debt, with a large portion of tax revenue being consumed by interest payments. This unsustainable debt burden threatens the country's economic stability and limits resources available for vital development and social welfare programs.

Despite retiring Rs329.3 billion in net debt this year, the government still requires substantial funds for commodity operations, particularly in the wheat sector. The high interest rates of 22% have trapped the government in a "real debt trap," forcing it to borrow more to make interest payments.

The alarming situation has enriched commercial banks, the prime lenders to the government, who earned a 100% profit last year. Meanwhile, the country's budget deficit reached Rs4.33 trillion for the July-March period, nearly 25% higher than the previous fiscal year.

Finance Minister Ishaq Dar acknowledged the challenges, stating, "The government paid Rs5.517 trillion as interest on borrowings, which is almost equal to the amount borrowed during the same period. This is an unsustainable situation that requires tough economic reforms and fiscal discipline."

Key Takeaways

• Pakistan borrowed a record Rs5.736 trillion from banks at high interest rates.
• Debt servicing consumed 76% of the government's tax revenue, totaling Rs5.517 trillion.
• Interest payments rose from Rs3.331 trillion in FY22 to Rs5.935 trillion in FY23.
• Debt burden threatens economic stability, limiting resources for development and welfare.
• Finance Minister acknowledges unsustainable situation, requiring reforms and fiscal discipline.