Under the leadership of Prime Minister Anwaarul Haq Kakar, Pakistan’s caretaker government has achieved a new milestone in bank borrowing. From July 1, 2023, to January 19, 2024, the government borrowed a staggering amount of nearly Rs 4 trillion, setting a record that reflects a significant 185% increase compared to the same period in the previous fiscal year.
This surge in borrowing, as reported by the State Bank of Pakistan, raises concerns about the economic repercussions for the country. While the government managed to meet its revenue collection targets for the first six months, the substantial debt burden, coupled with inflation, sluggish economic growth, and the challenge of addressing circular debts in the power sector, poses a significant challenge.
The borrowing strategy, with returns of around 21%, is proving to be a costly endeavor for the caretaker government. It is consuming over half of the budget allocated for debt servicing alone. This approach has faced criticism from financial experts and is acknowledged by the government as a significant economic challenge.
While the caretaker government is grappling with the consequences of its borrowing spree, banking institutions have emerged as the primary beneficiaries. These institutions have reported doubled profits in 2023, thanks to the increased borrowing trend in the past two fiscal years.
Unfortunately, it seems unlikely that this trend will reverse in the near term. With the looming general elections scheduled for February 8 and the anticipated formation of a new government, political uncertainties may further dampen investment prospects.
The incoming government must address the issue of excessive borrowing and its impact on the economy. While borrowing can be a useful tool for development and investment, it must be managed responsibly to avoid burdening future generations with unsustainable debt.
One possible solution is to focus on improving revenue collection and reducing reliance on borrowing. This can be achieved through effective tax reforms, cracking down on tax evasion, and promoting a business-friendly environment that encourages investment and economic growth.
Additionally, the new government should prioritize addressing the circular debts in the power sector. These debts not only burden the economy but also hinder the development of a reliable and sustainable energy infrastructure.
Furthermore, it is crucial to implement measures that promote transparency and accountability in government spending. This will ensure that borrowed funds are used efficiently and effectively for the benefit of the country and its citizens.
As Pakistan looks towards the future, it is essential to learn from the challenges faced by the caretaker government. By adopting responsible borrowing practices, improving revenue collection, and addressing systemic issues, the country can pave the way for a more stable and prosperous economy.
Ultimately, the record-breaking borrowing under the caretaker government serves as a wake-up call for Pakistan. It highlights the urgent need for economic reforms and prudent financial management to secure a brighter future for the nation.