The State Bank of Pakistan projects substantial borrowings from the banking system by the government to meet its budgetary needs between now and end June since it sees no signs of external financing which has been zero thus far, compared to the budgeted amount of Rs 135 billion. SBP does not expect the Federal Board of Revenue to meet the budgetary target.
SBP says FBR''s tax revenues are growing by 8.8 percent and to meet the target they need to grow by 35 percent, whereas the average for past 10 years is approximately 17 percent. Without expanding the tax base and incorporating all income generating sectors of the economy into the tax net, the tax woes of country''s economy are likely to continue, says SBP.
Moreover, the volume of interest payments during the first quarter of FY13 was Rs 313 billion - the highest level for a quarter. Domestic interest payment burden as a percentage of total expenditures and revenues has further increased and government urgently needs to increase the maturity profile by selling PIBs instead of shorter-term maturity treasury bills; in addition to initiating comprehensive fiscal reforms to reduce the size of the budgetary deficit.
The outstanding stock of government domestic debt and liabilities has increased to Rs 8.5 trillion and its share has increased to 62.7 percent of the total public debt. The government debt between FY09 and FY12 has risen on the average of 25 percent per year and is likely to double in volume terms by FY2015.
The stock government domestic debt has risen by Rs 691 billion in first half of FY13 and interest payment on domestic debt on an annualised basis is up by 42.3 percent in July-December 2012 over the corresponding period in 2011. The continuous rollover of significant amounts of liquidity injections in the market would add to growth of reserve money and keep money supply (M2) considerably high.
This indicates risks to the medium term inflation outlook, warns SBP. The rising trend in monetary aggregates is a key indicator of medium term inflationary pressures, explains SBP. A weakening external position and rising debt level is contrary to anchoring inflation at low level.