It is a matter of great concern that some of the credit and monetary aggregates have tended to show disturbing trends in recent months. During the first five months of the current fiscal year, the government seems to have set another record by borrowing over Rs 1 trillion from the State Bank as compared to the net retirement of Rs 170 billion in the corresponding period of last year. Such a high level of borrowings from the SBP should have reduced the government borrowings from the commercial banks. Unfortunately, however, the government borrowings from this source also jumped by 78 percent from Rs 211 billion a year ago to Rs 377 billion up to November, 2016. Credit to the private sector was also smaller at Rs 18 billion as compared to Rs 28 billion a year ago and this was despite the fact that the government was expecting a better growth rate this year which required a higher utilisation of private sector credit from the banking system. Cash flows of public sector enterprises (PSEs) received a huge battering as credit to them crossed Rs 53 billion in the first five months of 2016-17, which was 4.6 times higher than the credit of Rs 11 billion availed a year ago.
These alarming trends would appear to be innocuous to an ordinary person but are definitely alarming and a clear barometer of poor financial management of the country as all the monetary aggregates mentioned above tell us a sad story of the failure of the authorities to stem the tide of fiscal mismanagement and bankers' 'make hay while the sun shines' habit. An increase in government borrowings from the SBP does not only indicate increasing fiscal gap between revenues and expenditures but also shows higher reliance of the government on the central bank for deficit financing due to a reduced availability of funds from other sources. This was a major issue for the IMF during its EFF arrangement with the country over the last three years as it pressurised the government to reduce its budget deficit to the minimum and finance it from sources other than the SBP due to price implications of such a policy. It is obvious that the government, after the successful conclusion of the IMF programme, does not feel bound to adhere to the old policy without realising that widening of the budget deficit and increasing reliance on the SBP is bound to have a negative impact on important macroeconomic indicators of the economy. The issue of higher credit to PSEs is also serious. Such a deteriorating trend in the financial position of PSEs reflects the massive losses being increasingly suffered by the public sector units like PSM, PIA and PR and the government's inability to address their issues. Restructuring or privatisation of such units has been promised a number of times but the government often fails to meet its commitment due to political opposition and negative attitude of labour unions. The government wants to take opposition parties on board in this matter when it is in power but often changes its stance when it is in the opposition. Higher credit requirements of the government and PSEs reduce the availability of credit to the private sector. A smaller volume of private sector credit off-take would mean lower domestic investment, hindering business activity and economic growth and promoting unemployment in the country. The recent behaviour of monetary aggregates also gives the message that our policymakers only try for sound management of economy when they are bound by the IMF or some other authority but tend to act callously if they have no policy constraints. Such an attitude will force these global institutions to think many times before negotiating another agreement with the country.