Government Cuts Borrowing, Pays Off Debt in First Half of Fiscal Year
The government has managed to reduce its borrowing from banks for budgetary support during the first half of the current fiscal year, signaling improved financial liquidity.
Key Highlights:
- Debt Repayment: From July 1 to December 13, the government retired Rs2.03 trillion in debt, compared to borrowing Rs2.875 trillion during the same period last year.
- Reason for Liquidity: This improvement is attributed to Rs2.7 trillion received from the State Bank as profit, marking a historic shift from past practices of heavy borrowing.
- Missed Tax Targets: Despite falling short of tax collection goals in the first five months of 2024-25, the government avoided borrowing during this period.
- Budget Deficit Challenges:
- The fiscal deficit for FY24 was 6.8% of GDP, later revised to 7.4%, amounting to Rs7.206 trillion.
- For FY25, the deficit target is 5.9% of GDP or Rs7.283 trillion, with total budget spending at Rs18.9 trillion.
- Economic Growth and Borrowing Needs: While the economy is expected to grow by 3.6%, experts predict borrowing will increase in the second half of the fiscal year due to revenue shortfalls.
- IMF Program Concerns: The government’s slow progress on economic reforms, promised under the IMF’s $7 billion Extended Fund Facility, could lead to challenges during the IMF review in March.
- Borrowing Stock: By June 2024, the total borrowing stock for budgetary support reached Rs29.723 trillion.
While the first-half debt reduction is a positive sign, maintaining this momentum depends on meeting revenue targets and implementing necessary economic reforms.
