July 1, 2011 to Nov 18: Govt borrowing hits alarming level

KARACHI: Borrowing for budgetary support which is on a constant surge, posted a substantial increase of 105 percent during July 1 to November 18, 2011, because of rising current expenditure of federal and provincial governments.

"Healthy increase in government's current expenditure such as security and payment of subsidies are responsible for the significant surge in budgetary borrowing during the current fiscal year," bankers said. They added that although the borrowing from central bank is on decline but the overall barrowing from banking sector is on very high scale and hitting alarming level.

There is some good news from revenue side and government has successfully collected a record Rs 640 billion tax, up by 28 percent, during the initial five months of current fiscal year. With current direction of tax collection government is confident to meet annual tax collection target of Rs1,952 billion, which is higher by 25 percent over last year's Rs 1,558 billion collection.

However, the high borrowing from banking system revealed that rising tax collection is not sufficient enough to fulfil the government needs. Therefore, despite some increase in revenue collection, the capital and provincial governments are compelled to borrow from banks as well as the central bank to meet their financial requirements, they added.

The State Bank of Pakistan has revealed that borrowing for budgetary support by the federal and provincial governments has registered an increase of 105 percent or Rs 363 billion to Rs 707.776 billion as on November 18, 2011 since July 1, 2011 as compared to borrowing of Rs 345 billion in same period of last fiscal year.

Major borrowing has been made from scheduled banks, while borrowing from the SBP witnessed some decline. Bankers said high borrowing from scheduled banks as compared to the central bank borrowing shows that the central bank is shifting the borrowing to the scheduled banks by selling more treasury bills.

Borrowing of federal and provincial government from the SBP stood at Rs 61.62 billion as on November 18, 2011 compared with Rs 265.52 billion in corresponding period of last fiscal year. During the period under review, overall borrowing from scheduled banks surged to Rs 646.15 billion from 79.32 billion.

The State Bank also revealed that only federal government borrowed Rs 640.316 billion during July 1, 2010, to Nov 18, 2011, for budgetary support from banking system (including SBP and scheduled banks) compared with borrowing of Rs 355.34 billion in corresponding period of last fiscal year, depicting a massive increase of 80 percent or Rs 285 billion. The borrowing for budgetary support by federal government included Rs 17.5 billion from the State Bank and some Rs 622.316 billion from other scheduled banks.

Similarly, as per latest statistics, Broad Money (M2) registered a growth of 1.57 percent during July 1 to Nov 18, 2011 as compared to 4.87 percent growth in the corresponding period of last fiscal year 2010-11.