WEDNESDAY JULY 20: Fiscal Year 2010-11: government borrowing hits Rs 2.9 trillion mark

KARACHI: The federal government borrowing for budgetary support has reached historic level of Rs 2.9 trillion, up by 33 percent during the last fiscal year owing to higher subsidies and rising current expenditure. Significant increase in the budgetary borrowing shows that despite the central bank advice the federal government is continuously borrowing huge amounts from banking system to fulfil its financial requirements.
The State Bank of Pakistan on Tuesday revealed that the federal government borrowing for budgetary support from banking sector (including SBP and scheduled banks) registered a phenomenal increase of Rs 714 billion during FY11.
With current upsurge, the stocks of federal government borrowing for budgetary support reached an all-time high of Rs 2.903 trillion on June 30, 2011. Previously, it stood at Rs 2.188 trillion on June 30, 2010, showing an increase of 33 percent.
Although, the federal government borrowing from the SBP as well as scheduled banks registered a massive increase, however major increase has been witnessed in the borrowing from scheduled banks, while borrowing for budgetary support from SBP posted a slight increase in FY11. Massive increase in borrowing from scheduled banks as compared to the central bank borrowing shows that the central bank is shifting the burden of borrowing towards scheduled banks by selling more Treasury Bills.
The federal government borrowing from central bank went up by 9 percent or Rs 98.037 billion in FY11. The stocks of borrowing from the State Bank mounted to Rs 1.239 trillion as on June 30, 2011 compared with Rs 1.141 trillion as on June 30, 2010.
On the other hand, the federal government borrowed Rs 616.743 billion from scheduled banks during the last fiscal year. The stock of budgetary borrowing from schedule banks rose to Rs 1.663 trillion at the end of FY11 from Rs 1.047 trillion at end of FY10. Against the high borrowing by the federal government, all four provinces have retired heavy amount during last fiscal year. The retirement of advances by all four provinces reflects strengthened financial health. In FY11, stocks of budgetary borrowing of all four provinces stood in the negative as compared to Rs 67 billion from the SBP in FY10.
Similarly, net government borrowing from banking system surged by 24 percent or Rs 579.57 billion and crossed Rs 3 trillion mark in FY11. Stocks of net government sector borrowing mounted to historic level of Rs 3.02 trillion as on June 30, 2011 from Rs 2.44 trillion as on June 30, 2010.
"Shortfall in foreign inflows in the absence of privatisation, rising government expenditure and billions of rupee subsidies on commodities had forced the federal government to borrow more from domestic banking system," economists said. However, real economic costs of central bank borrowings cause enormous inflationary pressures, whose burden falls on businesses, industry and public at large, they said. "Definitely, rising budgetary borrowing would further increase the inflationary pressure on the economy. The inflation remains in the double digit for last few years," they added. They said the SBP has adopted tight monetary policy to force the government to reduce borrowing from the central bank.