The soaring budget deficit has forced the government to excessive borrowing from the banking system - surpassing annual limit by 47.62 percent to bridge the income-expenditure gap, the central bank reported on Wednesday.
The data issued by the State Bank of Pakistan (SBP) said the government's net borrowing for budgetary support from banks (scheduled and central bank) between July 1 and February 18, 2006 stands at 144.67 billion, who consumed 47.62 percent (Rs 46.67 billion) more than the limit of Rs 98 billion targeted for the entire fiscal year.
The finance ministry also reported recently that the federal government has suffered a budget deficit of Rs 136.684 billion in the first half (July-December) of the current fiscal year 2005-06.
The government has two options to bridge the gap, ie external and domestic sources. During the first six months, the government borrowed Rs 39.825 billion from external sources (including project aid, program loans, budget support grants and other loans) which is 692 percent more than that borrowed during the first quarter of Rs 5.025 billion. From domestic source of financing (banks, non-banks and privatisation proceeds) it received Rs 96.859 billion.
According to the SBP data, the government's borrowing from local banking system (a major source of domestic financing) shows a steep rise. The data further showed that government borrowing from the central bank was on the rise, while decline was noticed in case of scheduled banks.
It highlights that the government borrowed about 41 times more (Rs 144.67 billion) from the central bank and commercial banks than what it borrowed in the corresponding period last year, which was Rs 3.538 billion.
Economic experts believe that the rising budget deficit could further increase debt burden. They say, if the current rising trend persists, by end this fiscal, the budget deficit may surpass the target of four percent of GDP.
According to the SBP data, the federal government's net borrowing rose to Rs 128.942 billion between July 1, 2005 and February 18, 2006, from Rs 8.02 billion, which it retired in corresponding period last year.
The provincial governments borrowing also increased to Rs 15.731 billion from Rs 11.558 billion than the corresponding period last year. Thus on balance, the overall government borrowing for budgetary support stood at Rs 144.672 billion during this period.
During the period under review, the central government borrowed Rs 167.359 billion from the SBP as against Rs 143.758 billion last year. However, it retired Rs 38.417 billion earlier borrowed from the scheduled banks.
The SBP further says that the provincial governments during the period borrowed Rs 15.119 billion from the central bank, which was 15.92 percent more than the amount of Rs 13.043 billion that it borrowed in the corresponding period last fiscal year.
However, borrowing pattern of the provincial governments from the scheduled banks stagnant at Rs 612 million for the last few months reveals that it has stopped borrowing from these banks as during the same period last fiscal year, they retired Rs 1.485 billion debt of the scheduled banks.