Borrowing for budgetary support exceeds Rs 1 trillion

The federal government's borrowing from the State Bank of Pakistan (SBP) for budgetary support has witnessed a healthy growth and reached over one trillion rupees during the current fiscal year. The substantial budgetary borrowing from SBP also reflects a straight shift in the federal government's borrowing from scheduled banks to SBP to meet its financial requirements.
According to the SBP's Broad Money (M2) report, alone, the federal government borrowed Rs 1.075 trillion during July 1, 2016, to December 9, 2016, for budgetary support from the SBP compared with retirement of Rs 114 billion in the corresponding period of last fiscal year. During the period under review, borrowing from scheduled banks witnessed a massive decline and an amount of Rs 487.448 billion was retired to scheduled banks compared to Rs 496.856 billion borrowing during the same period of last fiscal year.As the federal government has also retired a massive amount to banks during this fiscal year, the federal government's net borrowing from domestic banking recourses (SBP and scheduled banks) for budgetary support stood at Rs 587.374 billion during July 1, 2016 to December 9, 2016.
Analysts said a phenomenal increase in current expenditure; Public Sector Enterprises (PSEs) losses and limited revenue collection resources have largely contributed to the higher government borrowing. In the current economic scenario, when the country is facing a shortfall in tax revenue and foreign inflows, there is only one way of funding that is borrowing from domestic resources, they added.
They also emphasised the importance of fiscal consolidation, which requires an effective tax system and restraining unproductive expenses. Meanwhile, cumulatively all four provinces have borrowed Rs 10 billion from the SBP during the period. Baluchistan and Sindh repaid their loans while Khyber-Pakhtunkhawa and Punjab borrowed a certain amount.
Government of Balochistan and Sindh got retired Rs 22 billion and Rs 23.779 billion, respectively to the SBP during July 1, 2016 to December 9, 2016. KPK and Punjab obtained loan amounting to Rs 18.317 billion and Rs 37.407 billion, respectively.
Cumulatively, federal and provincial governments borrowing for budgetary support stood at Rs 526.320 billion during July to first week of December FY17 compared to Rs 250.875 billion in the same period of last fiscal year, depicting an increase of 109 percent or Rs 275.445 billion. The federal and provincial governments borrowing for budgetary support during this year includes Rs 1.078 trillion borrowing from SBP and Rs 552.625 billion retirements to scheduled banks. Similarly, as per latest statistics, Broad Money (M2) registered a growth of 2.42 percent. According to the recent State Bank of Pakistan (Amendment) Act (2012), government borrowing from the SBP is required to be repaid at the end of each quarter and the existing stock is to be retired within eight years.