Net government borrowings for budgetary support posted a notable decline of 51 percent during the first half of this fiscal year (FY15) followed by rising foreign inflows. Against previous few years' trend, the federal and provincial governments borrowing for budgetary support is witnessing a declining trend since the beginning of this fiscal year.
In addition, the borrowings for budgetary support also reflects a major shift from central bank to scheduled banks because of State Bank of Pakistan (Amendment) Act (2012), which says: government borrowing from the SBP is required to be repaid at the end of each quarter and the existing debt stocks as on 30th April 2011 to be retired in eight years ie 2019. While, in case of not meeting 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 on Tuesday revealed that overall government (federal and provincial) borrowings for budgetary support stood at Rs 256.801 billion during July 1, 2014 to December 26, 2014 (first half of FY15) compared to Rs 526.174 billion borrowings in the same period of last fiscal year (FY14), depicting a massive decline of 51 percent or Rs 269 billion.
The detailed analysis revealed net government sector budgetary borrowing from the central bank stood in negative position of Rs 402.6 billion in July-December FY15 compared to a borrowing of Rs 512 billion in corresponding period of FY14. While, provincial and federal government has borrowed some Rs 659.432 from scheduled banks in the first half of this fiscal year as against a retirement of Rs 86 billion in same period of last fiscal year.
Economists said the current decline in the government sector budgetary borrowings is attributed to higher foreign inflows from several international financial sources, which comfort the government's financial requirements and provided an opportunity to contain its borrowing from domestic banking system.
"With arrival of expected foreign inflows like Sukuk and Eurobond payments, the budgetary borrowing posted a massive decline during the first half of this fiscal year. Pakistan has received some $1 billion of Sukuk bond and $1.05 billion from International Monetary Fund (IMF) on account of Extended Fund Facility (EFF) in first six months." they added.
In the past years, slow foreign inflows, rising government expenditures and billions of rupee power subsidies forced the federal government to borrow from domestic banking system. Whereas, presently oil prices in the world market are on lower level, which reduce the government's power subsidy expenditures. On domestic level, the country is still facing several issues, however higher foreign inflows provided an opportunity to the federal government to reduce its reliance on domestic borrowing, they added.
Economists are expecting the current borrowing trend may continue in the second half of this fiscal year as government is still expecting billions of dollar foreign inflows in coming months.
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