Government's budget borrowing may cross Rs 1 trillion mark

The federal government's borrowings for budgetary support is likely to cross one-trillion-rupee mark by the end of this fiscal year mainly because of lower than targeted tax collection and rising subsidies. Source in the banking industry told Business Recorder on Wednesday that rising untargeted subsidies and the absence of significant tax reforms to increase the tax base and collection were the basis of higher borrowing.
Because of slow tax growth, the federal government is depending on the borrowing from the domestic banking system, including the State Bank of Pakistan (SBP) and other scheduled banks. However, they said that the higher borrowings and rising debt level wais also increasing the government's debt servicing expenditures, compounding fiscal imbalance.
According to SBP data, the federal government borrowed Rs 964.811 billion for budgetary support from the banking system (including SBP and scheduled banks) between July 1 last year and April 5 this year against a borrowing of Rs 1.015 trillion in the corresponding period last fiscal year, depicting a decline of five percent or Rs 51 billion.
During the current fiscal year, the federal government's borrowing for budgetary support included Rs 108 billion from the SBP and some Rs 856.8 billion from scheduled banks. According to the SBP Act, the federal government's debt to State Bank as on April 30, 2011 had to be retired in eight years ie by 2019. After amendment in the SBP Act, some decline was witnessed in the budgetary borrowing.
The federal government's borrowing from the central bank plunged by 68 percent to Rs 107.976 billion between July 1 last year and April 5 this year against Rs 337.327 billion in the corresponding period last fiscal year. In addition, the borrowing from scheduled banks increased by 26 percent during the same period as the federal government borrowed Rs 856.835 billion from scheduled banks versus the previous year's Rs 678.516 billion.
"With present borrowing statistics, it is being expected that government borrowing for budgetary support will cross one trillion mark by the end of this fiscal year," sources said. They said that due to extensive borrowing from the central bank, the federal government had already breached the zero-quarterly borrowing limit from the SBP during the second quarter of FY13.
"Lower than target collection followed by poor tax growth (rate) and rising current expenditure may enhance the federal government reliance on the banking system to meet its financial requirements, (and may) result in higher borrowing from the banking system in the remaining period of FY13," they said.
They said that higher government borrowing was also putting pressure on the liquidity and subsequently on market interest rates, resulting in slow growth in the private sector credit. "The SBP also feels that the main implication of fiscal imbalance for monetary policy is excessive borrowing from the banking system, including the SBP," they mentioned.