KARACHI: The government retired Rs1.541 trillion in commercial banks’ debt during the first half of the current fiscal year against a net borrowing of Rs3.74tr in the same period last year, reflecting improved fiscal management.

The State Bank of Pakistan (SBP) data issued on Tuesday showed that during the July 1-3-Jan 3 period of FY25, the government emerged as a net debt retiring institution despite being a net borrower for many years.

“Primarily, the government got a big support from the SBP’s profit, which helped it to shift focus from short-term borrowing to long-term debts,” said Samiullah Tariq, Head of Research and Development at Pak-Kuwait Investment Company.

The SBP earned Rs3.42tr in FY24 due to unprecedented policy rate and exchange parity gain. The SBP provided Rs2.7tr to the government, which was unexpectedly large liquidity support. The policy interest rate remained at 22pc during the entire FY24, which generated enormous profit for the SBP but cost heavily to the government.

The federal government borrowed a record Rs8.519tr during FY24 at higher rates, mostly above 20pc.

Bankers said it was a record that the government, facing a revenue shortfall of Rs388bn during 1HFY25, was still retiring the debt. They believe the government will start borrowing in the second half of the FY25 as the interest rate has plunged to 13pc, which is expected to go down further in the upcoming monetary policy review on Jan 27.

Published in Dawn, January 15th, 2025