FRIDAY JUNE 22: Budgetary support: government borrowing reaches Rs 1.2 trillion mark

KARACHI: The government sector borrowing for budgetary support has hit a new peak of Rs 1.231 trillion, up by 75 percent, during the current fiscal year because of slow foreign inflows and rising fiscal deficit. "An extraordinary increase in current expenditure, rising subsidy on commodities, Public Sector Enterprises (PSE) losses and less than target revenue collection are the chief reasons for substantial budgetary borrowing," bankers said.
They said it is being expected that at end of current fiscal year government borrowing from domestic sources will be all-time high and likely to reach some Rs 1.350 trillion mark. Now, the federal and provincial governments are main borrowers of banks and approximately they have over 90 percent share in the total lending of banking industry, they added.
In current economic scenario, when the country is facing shortfall in tax revenue and foreign inflows, besides higher expenditures, there is only one way for the federal government and that is to borrow from domestic resources to fulfil its financial needs, they added.
The SBP has always mentioned higher federal government borrowing and urged for limited borrowing from the central bank. As part of these efforts, the central bank has also made some amendment to its Act. According to 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 stocks to be retired within eight years starting from this fiscal year. While, in case of not observing these provisions, the Act also stipulates that the federal government will submit a statement to the Parliament giving detailed justification.
The State Bank of Pakistan has revealed that cumulatively, the federal and provincial governments' borrowing for budgetary support from domestic banking industry (SBP and other scheduled banks) continues to post phenomenal increase and has crossed Rs 1200 billion mark during this fiscal year.
Overall borrowing of Capital and provinces for budgetary support has registered a massive increase of 75 percent or Rs 526.641 billion during July 1, to June 8, 2012 as compared with same period of last fiscal year. With current surge, cumulative borrowing of federal government and provinces has reached Rs 1.232 trillion during July 1, 2011 to June 8, 2012 against Rs 705.305 billion in July 1, 2010 to June 11, 2011.
According to SBP, the federal government is the major borrower, which alone has obtained Rs 1.18 trillion from SBP and other scheduled banks during the period under review as compared with borrowing of Rs 755 billion in the corresponding period of last fiscal year, depicting a massive increase of 56 percent or Rs 425.6 billion.
During current fiscal year, the federal government's borrowing for budgetary support included some Rs 462 billion from the State Bank and about Rs 719 billion from other scheduled banks. As on June 8, 2012, the federal government's borrowing from SBP has surged by 62 percent to Rs 461.616 billion and with an increase of 53 percent, borrowing from banks stood at Rs 719.347.
As against the high borrowing from State Bank, all four provinces have borrowed Rs 42 billion from SBP and Rs 10.25 billion from other scheduled banks during July 2011 to June 8, 2012. Out of four provinces, two provinces have retired their lending, while two have got new borrowing to meet their financial requirements.
Government of Balochistan and Khyber-Pakhtunkhawa have retired some Rs 12.7 billion and Rs 4.73 billion, respectively, to SBP, while Sindh and Punjab governments borrowed Rs 30.74 billion and Rs 29 billion, respectively. Similarly, as per latest statistics, Broad Money (M2) has registered a growth of 11.54 percent during the current fiscal year. It may be mentioned here that the State Bank has adopted tight monetary policy aimed at reducing the government borrowing and curb the rising inflationary pressure on the economy. Presently, the policy rate stands at 12 percent. In addition, the federal government spent some Rs 484 billion on account of domestic debt servicing during the first eight months of current fiscal year.