Budget Special: Punishing everyone’s favourite villain

Pakistan’s banking sector is like a rich patriarch who’s expected to bail out distant relatives falling on hard times every now and then. Yet everyone resents the same patriarch for his high status and vast wealth that they believe is undeserved and acquired through dubious means. A glance at recent federal budgets, including 2023-24, shows the government is quick to pile too much tax on the banking sector. But why should the government not raise taxes on banks given that they’ve uniquely positioned themselves to benefit from bad fiscal management by the federal government? The country runs on debt. The federal government will be short of Rs7.6 trillion to run its affairs in 2023-24. So it’ll finance two-thirds or Rs5tr of this deficit through domestic borrowing. Within domestic borrowing, the share of bank borrowing will be 62.5pc or Rs3.1tr. In simpler words, the government’s failure to balance its books leads to heavier reliance on bank loans by Islamabad. In turn, banks make money hand over fist, especially because the benchmark interest rate remains at an all-time high amid unprecedented inflation. Banks win, everyone else loses, or so the logic goes.