The federal government's budgetary borrowing from scheduled banks posted a notable increase reaching Rs 277 billion in first two months of current fiscal year (FY16) compared to a retirement of over Rs 1 billion in the same period of last fiscal year (FY15). The net federal government borrowing for budgetary support, during the initial months (July-August), also reflects a major shift from the central bank to schedule banks because of State Bank of Pakistan (SBP) Amendment Act 2012, which required net zero government borrowing from the SBP at the end of each quarter.
Bankers said in order to comply with the condition of the International Monetary Fund and the SBP Act 2012, the federal government has decided to enhance its reliance on the scheduled banks instead of the State Bank. This resulted in higher borrowing from the scheduled banks, they added.
The State Bank Tuesday revealed that the federal government has borrowed some Rs 277.480 billion from scheduled banks during the first two months (July-August) of FY16 compared to a retirement of Rs 1.411 billion in the corresponding period of last fiscal year (FY15), depicting an increase of Rs 279 billion. During the period under review, the federal government's borrowing from SBP for budgetary support was zero as it has retired Rs 114.781 billion to SBP in July-August of FY16 against Rs 177.114 billion borrowing in the corresponding period of last fiscal year.
As far as the net government borrowing for budgetary support from the domestic banking system (including SBP and scheduled banks) is concerned, it witnessed an upward trend compared to last year. With an increase of 13 percent, the net federal government borrowing for budgetary support from the domestic banking sector surged to Rs 141.751 billion in first two months of this fiscal year compared to Rs 125.982 billion in the same period of last fiscal year.
Bankers said the lower borrowing from the central bank is a positive sign for the economy and shows the government's seriousness to retire SBP borrowing in the line with the amended Act 2012. They said the SBP has always discouraged the federal government borrowing for budgetary support and urged for long-term tax reforms to enhance revenue and reduce borrowing.
As per the amendment to the SBP Act, the federal government borrowing from the SBP is required to be repaid at the end of each quarter and existing debt stocks (as on 30th April 2011) to be retired in eight years, ie, till 2019. 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.
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