The federal government retired over Rs 44 billion of budgetary borrowing to the State Bank of Pakistan (SBP) during the first three weeks of current fiscal year. Sources in the banking sector told Business Recorder on Tuesday that the federal government's borrowing for budgetary support from the State Bank is gradually reducing following the SBP reservations.
The federal government has already made a promise to the central bank that it would limit its borrowing at September 2010 level. They said that a declining trend in borrowing by federal government from the central bank was being witnessed for last few months. However, during the last two weeks of June 2011, the government had also retired borrowing of SBP, which was also helpful in improving the inflation outlook.
According to SBP statistics during the current fiscal year 2012 the federal government has not only cut its borrowing from the State Bank but also retired Rs 44.090 billion during first three weeks (July 1 to July 23, 2011) as compared to the borrowing of Rs 37.058 billion in same period of last fiscal year. However, the federal government budgetary borrowing from scheduled banks (other than SBP) registered a healthy growth during the period under review. The federal government borrowed Rs 28.645 billion from scheduled banks during the first three week (July 1, to July 23, 2011) of current fiscal year compared with a retirement of Rs 6.69 billion in corresponding period of last fiscal year.
Cumulatively, the budgetary borrowing of federal and provincial governments from banking system (banks and SBP) posted a decline of 35 percent during the initial month of current fiscal year. The cumulative budgetary borrowing of federal and provincial governments from banking system declined to Rs 27.721 billion during July 1 to July 23, 2011 compared with borrowing of Rs 42.502 billion in same period of last fiscal year, depicting a decline of Rs 14.781 billion in first three weeks.
"The government borrowing for budgetary support is on lower side for last few weeks, which reflect that government is sincerely making efforts to cut its borrowing from the central bank," bankers said. Although the federal government has made efforts to reduce its borrowing from the State Bank. However, the borrowing from the banking system during the current fiscal year is still high and reflects that the government is still relying on banking system for budgetary support due to below target revenue collection, beside slow privatisation process and high fiscal deficit, sources said.
Bankers said that high borrowing from scheduled banks as compared to the central bank borrowing depicts that after commitment with SBP now, the federal government is shifting the burden of borrowing towards the scheduled banks by selling short-term and long-term bonds.
The federal government has already planned to borrow Rs 800 billion from banking sector during the first quarter (July-September) of current fiscal year 2011-12 aimed to meet its rising financial needs. This included Rs 50 billion of Pakistan Investment Bond and Rs 750 billion will be generated through auction of Market Treasury Bills.
They said despite some changes in the tax system and cut in the current expenditure, the federal government is still facing financial difficulties due to less then target revenue collection and slow foreign inflows. According to State bank statistics cumulatively provincial governments have borrowed Rs 45.96 billion from SBP.
Balochistan government has borrowed Rs 46 million during July 1, to July 3, 2011 compared with 3.88 billion borrowing in same period of last fiscal year. Punjab government has borrowed Rs 28.84 billion, Sindh government Rs 7.803 and Khyber Pakhtunkhwa government has borrowed Rs 9.72 billion during the period under review.
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