The government has announced its plan to borrow a record amount of Rs10.36 trillion through treasury bills and bonds between June and August in order to bridge the budget deficit, given the low revenue collections and depleted foreign currency inflows.
The majority of the borrowing for the three-month period will be done through Market Treasury Bills (T-bills) with varying maturities of three, six, and 12 months. The government aims to raise Rs8.70 trillion through short-term paper auctions, as per the auction calendar released by the central bank.
To facilitate borrowing, the government will also issue Pakistan Investment Bonds (PIBs) with fixed and floating rates, allowing it to secure an additional Rs1.66 trillion. Due to limited external loan inflows, the government has increasingly relied on domestic banks to meet its growing financing needs. Despite the passage of months, progress on the International Monetary Fund (IMF) bailout package has been stagnant.
The combination of lower revenue and higher expenditure requirements has compelled the government to accumulate higher domestic debt. Pakistan’s public debt reached Rs58.6 trillion by the end of April, compared to Rs43.705 trillion during the same period last year. Domestic debt constitutes the largest portion of the country’s total debt, accounting for 43% of the gross domestic product.
As of April 2023, domestic debt has surged by 26.4% year-on-year, reaching Rs36.549 trillion. During the first 10 months of this fiscal year, domestic debt rose by 17.57%. Although the budget deficit decreased from 4.9% to 4.6% of GDP in the current fiscal year’s first 10 months, the primary balance has improved from a deficit of Rs890.2 billion in July-April FY22 to a surplus of Rs99.1 billion in the same period of FY23.
Despite the imposition of new taxes and increased administrative measures leading to a compression of imports, tax revenues have increased by 17% year-on-year in July-March FY23, amounting to Rs5.6 trillion.
Analysts anticipate the budget deficit to reach 6.3% of GDP in the current fiscal year, compared to 7.9% in the previous year. The government’s increasing borrowing requirements are driven by the anticipated rise in overall public sector development spending and current expenditure by 111% and 15% respectively, in the ruling party’s final budget before the upcoming elections.
The budget for the fiscal year 2023-2024 is scheduled to be released on June 9 (today). This increase in spending aims to garner public support prior to the elections while promoting economic growth and addressing key socioeconomic issues.