Another challenging chapter in the government’s fiscal management path is expected to occur in fiscal year 2024.
The government’s reliance on domestic debt is anticipated to endure despite improvements in revenue collection and the return of external debt inflows in June and July. But this dependence has a heavy cost in the form of exorbitant interest payments and substantial repayments of foreign debt.
These financial obligations are expected to take up a sizable portion of the available finances, leaving little left over for economic development initiatives.
The government has set its sights on obtaining a massive Rs11.09 trillion in credit from local commercial banks over the following three months (August to October 2023).
According to data released by the State Bank of Pakistan (SBP) on Monday, this ambitious target closely resembles the all-time high goal of Rs11.10 trillion set from July to September 2023 in the preceding month of July.
Government officials and financial experts initially anticipated that once foreign inflows restarted, the government’s reliance on domestic borrowing would decrease. Following the acceptance of a new IMF loan program for $3 billion over nine months, this prediction came true in June and July 2023.
Since foreign inflows hardly ever cover external expenses, such as maturing foreign loan repayments and debt service costs, which are projected to total about $24.5 billion during FY24, the government’s reliance on domestic borrowing is expected to remain high.
The Ministry of Finance reported a 20% increase in overall spending to reach Rs8.85 trillion for the July-May period of FY2023, compared to Rs7.36 trillion in the prior year, in its economic update and projection for July 2023. Within this amount, current spending increased by 22% to Rs8.34 trillion for the July–May fiscal year of 2023 from Rs6.84 trillion the year prior.
The ministry blamed an 80% increase in markup payments, which were sparked by a higher policy rate that is currently at a record 22%, as the cause of the whole increase in current spending.
