The federal government has borrowed Rs 482 billion from banking system for budgetary support during the first half of current fiscal year because of rising current expenditure and less than target collection.
Sources in banking industry told Business Recorder that in contrast with first half of last fiscal year, the federal government budgetary borrowing is increasing continuously and has posted an increase of 123 percent or Rs 266 billion to Rs 482.045 billion during first half of fiscal year 2010-11 (July 1, 2010 to December 24, 2010) as compared to Rs 215.801 billion in same period of last fiscal year.
The federal government's major budgetary borrowing has witnessed from the central bank and with an increased of 368 percent the federal government budgetary borrowing from SBP has climbed to Rs 272.324 billion in first half of current fiscal year relative to a borrowing of Rs 58.076 billion during same period of last fiscal year.
Over 368 percent increase in government budgetary borrowing reflects that federal government is still relying on the State Bank to meet its budget deficit despite the central bank request to reduce the borrowing and retire the already taken borrowing, they said.
"Due to uncertainty and delays in external financing of the budget, government is borrowing substantially from banking system specially form the central bank," sources said. Adding, that continued government borrowings from the banking system for budgetary support put further pressure on the banking system resources.
The State Bank has already asked the government that rising budgetary borrowing is the major contributor in expansion of net domestic assets and monetary growth. "SBP had also clearly indicated that the high level of government borrowing from the SBP is diluting the effectiveness of monetary policy in containing excessive monetary expansion and thus inflation," they said.
For the provinces side the State Bank's board in its last meeting for MPS had principally decided to strictly implement the revised limits on borrowings of the provinces from the SBP, even if it involves stopping payments to the provincial governments. According to the SBP statistics federal and provincial government's borrowing for budgetary support from the banking system has surged by 100 percent or Rs 228.497 billion to Rs 459.037 billion during the first half as compared to Rs 230.54 billion in corresponding period of last fiscal year.
During the period borrowing of three provinces including has Balochistan, Khyber Pakhtunkhwa and Sindh was in negative position, while Punjab-the most effected province from flood, has borrowed some Rs 3 billion from central bank. Rising current spending and less than target revenue collection has enhanced government reliance on SBP, therefore despite the IMF condition the government is compelled to more borrow from baanking system, economist said. "We believed that borrowing will increase in the future if funding was not released by the international financial institutions," they added.
"The central bank has asked the federal government to minimise borrowing from the bank, however the increasing flood expenditures have compelled the government to borrow from SBP to met financial requirements," economists said. It is expected that this year overall government's borrowing for budgetary support would be higher than the last fiscal year, they added. Similarly, as per latest statistics Broad Money (M2) has registered a healthy growth of 7.90 percent during the July-December of the current fiscal year 2011 as compared to a growth of 4.54 percent in corresponding period of the last fiscal.