The government's reliance on the banking industry has been gradually increasing, followed by higher fiscal deficit, and credit to government sector has registered a remarkable rise of 24 percent to the level of Rs 3.7 trillion during the first half of current fiscal year 2011-12.
Economists said that higher fiscal deficit has forced the government to borrow from the domestic banking sector including State Bank of Pakistan (SBP) and scheduled banks to fulfill its financial needs. During current fiscal year the country has about one trillion rupees fiscal deficit and to meet this deficit the government is constantly borrowing from banking industry. In the current economic scenario, when major external funding has almost come to a standstill, the domestic sources are the single way for the government to finance its fiscal deficit, they added.
The State Bank of Pakistan on Tuesday said that cumulative stocks of credit to government sector by banking industry (SBP and scheduled banks) mounted to Rs 3.720 trillion at the end of December 2011 compared with Rs 3.009 trillion in June 2011, depicting a massive increase of Rs 711 billion in July-December of fiscal year 2011-12 (FY12).
The detailed analysis points out that major credit has been provided by the scheduled banks, while SBP has a minor share in overall credit provided to government sectors during the first half. SBP gave a new credit of Rs 116.419 billion to the government sector and with current increase it reached Rs 1.301 trillion in December 2011 from Rs 1.185 trillion in June 2011. Out of this total SBP's investment in government securities has large share, which stood at Rs 1.441 trillion with an increase of 5.63 percent.
SBP's loans to government sector, however, posted a decline of 73 percent to Rs 5.827 billion in December 2011 from Rs 21.35 billion in June 2011. In addition, credit to government sector by scheduled banks registered a remarkable increase of 32 percent, or Rs 594.734 billion, in first half of FY12. After this increase, stock of credit to government sector by scheduled banks reached Rs 2.419 trillion at the end of December 2011 compared with Rs 1.824 trillion in June 2011.
The investment in the securities government by scheduled banks surged by 30 percent to Rs 2.664 trillion in December 2011 from Rs 2.057 billion in June 2011. However, the loan to government sector by scheduled banks decreased by 12 percent, at Rs 359.239 billion at the end of first half compared with Rs 410 billion as on July 1, 2011. "We are expecting this trend in the future as well because of higher subsidies on urea and power sector besides slow foreign inflows", economists said. Although there is some increase in the remittances sent by overseas Pakistanis, over-funding to fulfill the fiscal deficit is on very slow track, they added.