Finance: Economic challenges are deep

The federal government borrowed more than Rs4 trillion from commercial banks in seven months and nine days of this fiscal year (between July 1, 2023, and February 9, 2024), according to the State Bank of Pakistan (SBP). After some adjustments (mainly retirement of State Bank of Pakistan debts and net negative borrowings by provinces), the government sector’s borrowings for budgetary support totalled Rs3tr. Will the new coalition government (which is in the process of forming after the February 8 elections) add more to this huge borrowing stock? Chances are that it will. In the last fiscal year, the government sector’s budgetary borrowings totaled Rs3.75tr. Even in the best-case scenario, this year’s total borrowings will either exceed this amount or remain close to it. This means banks will continue to enjoy safe haven investment in Treasury Bills and Bonds and will be least bothered to meet the financial requirements of the private sector. In seven months and nine days of this fiscal year, the private sector’s net borrowings from banks totalled just Rs66bn. The amount equals a paltry 1.76 per cent of the budgetary borrowings. This trend of crowding out the private sector from banks’ credit market is unsustainable.