KARACHI: Government lending to banks for budget support was negative during the first half of the current fiscal year ended December 31, indicating increased liquidity in the national exchequer.
The latest data from the State Bank for the period from July 1 to December 13 showed net debt write-off of Rp 2.03 trillion against net borrowing of Rp 2.875 trillion in the same period last year.
Experts believe this is historic as in the past governments had borrowed heavily for budget support, and this debt retirement could be a result of State Bank’s inflows of Rs 2.7 trillion in profits. .
They also noted that this debt retirement was significant given that the Federal Board of Revenue (FBR) failed to meet the projected collection target during the first five months of 2024-25.
Overflowing with liquidity, the State retires a debt of 2.03 trillion rupees in July-December
The government borrowed Rs 7,479 trillion in FY24, up from Rs 3,748 trillion in FY23, reflecting a doubling of borrowing for budget support compared to the previous year.
Debt was a central point since it showed the fiscal deficit. In FY24, the budget deficit was 6.8% of gross domestic product (GDP) or Rs 7.206 trillion despite the provincial surplus of Rs 518.213 billion.
This fiscal deficit was revised to 7.4 percent of GDP in FY24. Since the country is in the IMF programme, the fiscal deficit should reduce compared to last year.
The total fiscal deficit for FY25 stands at Rs 7,283 trillion, representing 5.9 percent of GDP, up from a revised 7.4 percent in FY24. The total budget outlay for FY25 is Rs 18.9 trillion, including gross receipts (tax and non-tax), non-bank loans, bank loans, net external receipts and privatization proceeds. The economic growth projection is 3.6%.
Financial experts said since the FBR missed the collection target, the government will borrow for budget support in the second half of the current fiscal year.
Independent economists have written that the government has not yet introduced the economic reforms committed to the IMF. They said the IMF’s review mission for the first review under the 37-month, $7 billion Extended Fund Facility is due in March, and that failure to implement promised reforms could create serious problems.
The government has so far failed to improve its revenue as per target, which may result in a larger than anticipated fiscal deficit.
Data from the State Bank showed that the volume of borrowing for budget support reached Rp29.723 trillion as of the end of June 2024.
Published in Dawn, December 26, 2024
