Government borrowing touches alarming levels: Rs 781 billion as on June 4, 2011

The Federal Government's borrowing for budgetary support has posted a highly significant surge of some 85 percent to record level of Rs 781 billion mark as on June 4, 2011, because of less than expected revenue collection.
The State Bank of Pakistan has revealed that alone Federal Government has borrowed Rs 780.831 billion during July1, 2010, to June 4, 2011, for budgetary support from banking system (including SBP and scheduled banks) compared with borrowing of Rs 421.429 billion in corresponding period of last fiscal year, depicting a massive increase of 85.28 percent or Rs 359.402 billion. The borrowing for budgetary support by Federal Government included Rs 293 billion from the State Bank of Pakistan and some Rs 487 billion from other scheduled banks.
The Federal Government borrowing from SBP has surged by 72 percent or Rs 122.443 billion to Rs 293.306 billion as on June 4, 2011, compared with Rs 170.863 billion within same period of last fiscal year 2009-2010. In addition, borrowing from scheduled banks witnessed a massive increase of 95 percent during the period as the Federal Government has borrowed an amount of Rs 487.525 billion from scheduled banks compared with Rs 250.566 billion previously.
Bankers said high borrowing from scheduled banks as compared to the central bank borrowing depicts that the central bank is shifting the borrowing to the scheduled banks by selling more treasury bills. "Phenomenal increase in current expenditure and less than target revenue collection are the chief reason of current substantial budgetary borrowing from banking sector", they said.
On the pressure of the State Bank of Pakistan (SBP) and International Monetary Fund (IMF) some positive steps are being taken to prevent the higher government budgetary borrowing, but still it seems to be higher than estimates, they added.
As against the high borrowing from State Bank, all four provinces have retired heavy amount during the first eleven months of current fiscal year. The retirement of financing by all four provinces reflects strengthened financial health. During the period under review provinces have retired totalled Rs 75 billion to the State Bank. Government of Balochistan has retired Rs 24.882 billion, Khyber-Pakhtunkhwa some Rs 18.638 billion, Punjab government Rs 8.187 billion and government of Sindh has retired Rs 23.245billion during July 1, 2010, to June 4, 2011.
Cumulatively, federal and provincial governments borrowing for budgetary support stood at Rs 716.721 billion till June 4, 2011, as compared to Rs 434.729 billion, showing a surge of 65 percent or Rs 289 billion in first eleven months. Similarly, as per latest statistics, Broad Money (M2) has registered a growth of 13.66 percent during July1, 2010, to June 4, 2011, as compared to 9.79 percent growth in the corresponding period of last fiscal year 2009-2010. It may be mentioned here that the State Bank has adopted tight monetary policy aimed to reduce the government borrowing and policy rate has already been at high level of 14 percent for a long time.