Government borrowing witnesses record level of Rs one trillion

The Federal Government''''s borrowing for budgetary support has witnessed a huge growth of 110 percent to a new record level of one trillion rupees because of slow foreign inflows, rising fiscal deficit and less than expected revenue collection.
The State Bank of Pakistan on Tuesday revealed that alone federal government had borrowed Rs 1.033 trillion during July 1, 2011, to April 6, 2012, for budgetary support from banking system (including SBP and scheduled banks) compared with borrowing of Rs 490 billion in corresponding period of last fiscal year, depicting a massive increase of 110 percent or Rs 543 billion.
During current fiscal year, the federal government''''s borrowing for budgetary support included Rs 337 billion from the SBP and some Rs 695.79 billion from other scheduled banks. The federal government borrowing from SBP has surged by 78 percent or Rs 147.5 billion to Rs 337.327 billion as on April 6, 2012, compared with Rs 189.798 billion in corresponding period of last fiscal year 2010-2011.
In addition, borrowing from scheduled banks witnessed a massive increase of 132 percent during the period under review as the federal government has borrowed an amount of Rs 695.79 billion from scheduled banks compared to Rs 300.29 billion previously. "Phenomenal increase in current expenditure, rising subsidy on commodities, public sector enterprises'''' losses and less than target revenue collection are the chief reason of current substantial budgetary borrowing by the federal government," bankers said. According to the recent SBP (Amendment) Act (2012), the government borrowing from the SBP is required to be repaid at the end of each quarter and the existing stock is to be retired within eight years, they added.
SBP, in its recent issued monetary policy, has also criticised higher federal government''''s higher borrowing and said that in case of not observing those provisions, the Act also stipulated that the federal government would submit a statement to the Parliament giving detailed justification.
In the current economic scenario, when the country was facing shortfall in tax revenue and foreign inflows, there was only one way for the federal government to borrow from domestic resources, they added. As against government estimate of Rs 134.5 billion in terms of net external borrowing during FY12, it has received only Rs 34 billion so far, they said, adding that dearth of external financing was likely to further aggravate the burden of borrowing on domestic sources.
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. As against the high borrowing from SBP, all four provinces have retired heavy amount during the period under review. The retirement of financing by all four provinces reflects strengthened financial health. During the period under review provinces have retired totalled Rs 30.52 billion to the central bank.
The Government of Balochistan has retired Rs 14.748 billion, Khyber-Pakhtunkhwa some Rs 8.5 billion and Sindh government Rs 8.3 billion as on April 6. However, Punjab is the single province, which has borrowed Rs 1.08 billion during the period. Cumulatively, federal and provincial governments borrowing for budgetary support stood at Rs 1.014 billion during July 1, 2011 to April 6, 2012, as compared to Rs 418.103 billion, showing a surge of 142 percent or Rs 596 billion in corresponding period of last fiscal year.
Similarly, as per latest statistics, Broad Money (M2) has registered a growth of 8.67 percent. It may be mentioned here that the SBP has adopted tight monetary policy aimed at reducing the government borrowing and curb the rising inflationary pressure on the economy and presently policy rate stood at 12 percent. In addition, the federal government has spent some Rs 484 billion on account of domestic debt servicing during the first eight months of current fiscal year.