Karachi [Pakistan], June 25 : In a fiscal year marred by unprecedented borrowing and soaring debt servicing costs, the Pakistani government faces substantial financial challenges as it navigates through 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," revealed economic data, emphasising the magnitude of financial commitments.
This hefty borrowing, amounting to PKR 7.39 trillion from July 2023 to June 7, 2024, surpasses the government's collective 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 high spending necessitated by slashed development budgets in favour of meeting other expenses.
The impact of this extensive borrowing is profound, constraining the government's ability to allocate funds towards critical development projects. Instead, a significant portion of tax revenues is earmarked for debt servicing, a trend expected to escalate in the upcoming fiscal year, as reported by 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," according to the budget document for FY2023-24. This figure is set to rise further in FY25, with allocations totalling PKR 9.77 trillion for debt servicing alone.
Amid projections of increased revenue generation, economic experts remain skeptical 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.
Critically, the high interest rates, recently reduced but still hovering around 20.5 per cent, 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 per cent in May, prompting calls for interest rates to be lowered to 13-14 per cent.
"This excessive borrowing practically makes it impossible for the government to spend money on development projects," lamented a banker, highlighting the imbalance between public sector investments and private sector participation, Dawn reported.
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