Pakistan Faces Financial Challenges with Record Borrowing and Debt

Karachi, Pakistan – The Pakistani government is facing substantial financial challenges due to unprecedented borrowing and high debt servicing costs. In the first 11 months of the fiscal year, borrowings reached PKR 7.39 trillion, surpassing the combined total of the previous two years.

This extensive borrowing has limited the government’s ability to allocate funds towards critical development projects. Instead, a significant portion of tax revenues is earmarked for debt servicing. For FY2023-24, the government is expected to spend PKR 7.21 trillion on domestic debt servicing and an additional PKR 1.04 trillion on foreign debt servicing, totaling PKR 8.25 trillion. This figure is projected to rise to PKR 9.77 trillion in FY25.

Economic experts are skeptical about the government’s ability to achieve ambitious tax collection targets, including the PKR 12.97 trillion target for FY25. The business community is also concerned about high interest rates, which, despite recent reductions, remain around 20.5 per cent. They are calling for rates to be lowered to 13-14 per cent to align more closely with the inflation rate of 11.8 per cent in May.

A banker highlighted the impact of excessive borrowing, stating, “This excessive borrowing practically makes it impossible for the government to spend money on development projects.” The imbalance between public sector investments and private sector participation remains a significant concern.