External financing: government facing massive shortfall

The federal government is facing massive shortfall in financing from the external sources, as just Rs34 billions have been received during the first half of the current fiscal year against the annual estimates of Rs135 billion.
Sources told Business Recorder on Sunday that the heavy reliance on borrowing from the banking system was also mainly a consequence of the massive shortfall in financing from the external sources.
As compared to the estimated amount of Rs135 billion in the federal budget of 2011-2012 (FY-12), the government has so far received Rs34 billion only in first half (July-Dec) of FY12, they informed. They added that in the first quarter, external financing was in negative position of Rs4 billion, while the country received an amount of Rs38 billion in second quarter of the current fiscal year from external sources.
On the other hand domestic financing seems strong as against Rs717 billion budgetary estimates, so far Rs499 billions have been generated. Out of the total domestic financing receipts, some Rs262 billion were received in first quarter and Rs237 billion in second quarter of FY12.
Sources said the government has yet to receive approximately Rs115 billion from the remaining amount of PTCL privatisation's proceeds and issuance of euro bonds. However, in case these, along with other financing flows, did not materialised during the remaining months of FY12, borrowings from the banking system may continue.
In addition, due to the high borrowing to finance the fiscal deficit the federal government has also breached the mutually agreed limit of Rs1155 billion for budgetary borrowing with the State Bank of Pakistan (SBP).
Relaying on the expected high external financing, during the initial months of current fiscal year, the government expressed its commitment to keep the yearly flow of its borrowings from SBP to zero and as per commitment the federal government did adhere to its commitment in first quarter of FY12 and in fact retired borrowings from SBP.
However, according to SBP's fresh statistics, government did not fulfil its commitment in the second quarter of FY12 as it borrowed substantial amount from SBP to meet its financial requirements.
After a net retirement of Rs104 billion in first quarter, overall outstanding stock of government's borrowings from SBP are rising since the beginning of the second quarter of current fiscal year. "Increase in government borrowings from the banking system is largely due to shortfalls in projected external financing," bankers said.
They said that government borrowing for budgetary support from the banking system is also a major driver of monetary expansion during the current fiscal year. During 1st July-3rd February, FY11-12, government borrowed Rs835 billion, out of which Rs197 billion were from the SBP. Resultantly, current borrowing from SBP has pushed the stock of net budgetary borrowing from the SBP to Rs1352 billion (on cash basis), which is higher than the mutually agreed limit of Rs1155 billion.
Besides borrowing, the country's external current account deficit has also reached $2.2 billion at the end of first half of FY12, which is already higher than SBP's full year projection made at the beginning of current fiscal. This deterioration is primarily due to a sharper widening of the trade deficit and less than targeted foreign inflows.