The stocks of federal government's borrowing for budgetary support have reached all-time high level of Rs 5.56 trillion, up by 37 percent, as on June 30, 2013 mainly due to slow foreign inflows and shortfall in revenue. Economists said slow foreign inflows in the absence of privatisation, rising government expenditure and billions of rupees subsidies forced the federal government to borrow more from domestic banking system.
"Extraordinary increase in current expenditure, Public Sector Enterprises (PSEs) losses and less than target revenue collection are some other reasons for substantial budgetary borrowing during the last fiscal year," they added. In current economic scenario, when the country is facing shortfall in tax revenue and foreign inflows, borrowing from domestic resources is the only one way for the federal government to fulfil its financial requirements, they said. The SBP has always criticised the rising/higher federal government borrowing and urged limited borrowing from the central bank. As part of these efforts, SBP had made some amendments to its Act.
According to State Bank of Pakistan (Amendment) Act (2012), 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 will 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.
According to State Bank the federal government's borrowing for budgetary support from banking sector (including SBP and scheduled banks) registered a phenomenal increase of Rs 1.49 trillion during the lastt fiscal year 2012-13 (FY13). With current upsurge, the stocks of federal government borrowing for budgetary support have reached all-time high level of Rs 5.56 trillion as on June 30, 2013. Previously, it stood at Rs 4.06 trillion as on June 30, 2012, showing an increase of 37 percent.
Although, the federal government's borrowing from SBP as well as scheduled banks has registered a massive increase, however major increase has been witnessed in the borrowing from scheduled banks during the last fiscal year. Massive increase in borrowing from scheduled banks as compared to the central bank borrowing depicts that the central bank is shifting the burden of borrowing towards scheduled banks by selling more Treasury Bills aimed at meeting the requirement of SBP Act 2012.
The federal government's borrowing from central bank gone up by 32 percent or Rs 536.771 billion in FY13. The stocks of borrowing for budgetary support from the State Bank mounted to Rs 2.24 trillion as on June 30, 2013 compared with Rs 1.7 trillion as on June 30, 2012. The federal government has also borrowed Rs 960 billion from scheduled banks during last fiscal year. With current hike the stock of budgetary borrowing from scheduled banks surged to Rs 3.3 trillion at end of FY13.
As against the high borrowing by the federal government, all four provinces have retired heavy amount during last fiscal year. The retirement of advances by all four provinces reflects strengthened financial health. End of FY13, accounts of all four provinces stood in credit position of Rs 27.94 billion with SBP and Rs 287 billion with scheduled banks.
Similarly, net government sector borrowing from banking system surged by 35 percent or Rs 1.479 trillion to reach all-time high mark of Rs 5.7 trillion at end of last fiscal year. Economists said real economic costs of central bank borrowings cause enormous inflationary pressures on the economy and its burden falls on businesses, industry and public at large.
Definitely, rising budgetary borrowing would further increase inflationary pressure, which has recently reduced and became single digit after many years, they added. They said the SBP has eased its monetary policy to facilitate private sector, however it seems that the government will be the main beneficiary of this cut in key policy rate as presently the federal government is the main borrower of the banking system. Economists have also emphasised the importance of fiscal consolidation which requires an effective tax system and restraining unproductive expenses, particularly those related to Public Sector Enterprises and subsidies to energy sector.