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Govt borrows Rs144bn more from SBP than agreed limit

03 June, 2011

KARACHI: The government`s overshot its credit limit from the central bank by Rs144 billion for budgetary requirements in the current fiscal year, underlining a lack of financial discipline and control, according to the Pakistan Economic Survey 2010/11 released on Thursday.

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KARACHI: The government`s overshot its credit limit from the central bank by Rs144 billion for budgetary requirements in the current fiscal year, underlining a lack of financial discipline and control, according to the Pakistan Economic Survey 2010/11 released on Thursday.

The document said that the outstanding stock of government borrowings from the State Bank of Pakistan (SBP) stood at Rs1,434 billion by May 5, which is Rs144 billion higher than the agreed limit.

The government had agreed with the central bank that its borrowing would not exceed Rs1,290 billion during the current fiscal year.

The government borrowed Rs196.3 billion from the SBP, while Rs275.9 billion has been borrowed from the scheduled banks during July-April.

“Less-than-expected non-bank and external financing for budgetary support compelled the government to borrow from the SBP and scheduled banks since October 2010,” the review said.

The government’s heavy reliance on the SBP borrowing to finance its fiscal deficit created a relentless increase in the demand pressure. The flood devastations and suspended International Monetary Fund (IMF) programme, besides insufficient funds from non-bank sources raised the pressure on the SBP borrowing through most of the first half of the ongoing fiscal year.

This resulted in high interest rate as the SBP raised the policy rate by 150bps, staggered in three stages of 50bps each, since July 2010. The SBP raised the policy rate by 50bps to 13 percent on August 2, 2010.

The survey said that inflation became a challenge in the aftermath of the floods, which also compelled the central bank to raise the policy rate.

After the last raise in key rate to 14 percent the need for further adjustment in the policy rate was not felt simply because inflation had started moderating and fiscal discipline was resorted, with government borrowings from the SBP brought down significantly.

“The efficacy of the monetary policy to shave-off aggregate demand from the economy was affected due to unanticipated fiscal pressures emanating from revenue expenditures mismatch,” it added.

The economic review said that despite recent improvement in the external current account, restrained government borrowings from the SBP and stable financial markets, the focus of both the monetary and fiscal policies remained on addressing the structural fiscal weaknesses, reducing inflation for sustainable economic recovery and supporting the revival of growth momentum in 2011/12.

The credit availed by the private sector during July-April was Rs156.7 billion against Rs144.2 billion during the corresponding period last year, the survey said.

The survey stressed upon the need to increase the private sector’s investment, as it plays a vital role in economic growth.

About the monetary management, the survey said that Pakistan’s economy has slowed since 2008, as the macroeconomic situation deteriorated significantly, owing to multiple Overall the electricity consumption increased by 2.8 percent during July-March 2010/11 against the corresponding period last year.

The reason for the modest increase in the consumption of electricity indicates some revival in the economic activities as the increase mainly emanates from industrial sector where an increase of 7.3 percent has been witnessed. With the exception of agriculture and street lighting sectors, all the remaining sectors witnessed a positive growth during July-March 2010/11.

To meet the current and future energy demands, the government is working on different power generation projects, according to the survey.

During 2009/10, an addition of 1,298MW was added to the system and by the end of June another 1,871MW would be added to the existing system of Pakistan Electric Power Company (PEPCO). Thus, the expected capacity by the end of June will be 21,117MW and by 2029/30 expected cumulative capacity will be 106,656MW.

“This has been planned according to the current demand and the future requirements,” the survey revealed.

End.


 
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