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Govt borrows Rs28bn from SBP in a week

08 March, 2012

KARACHI: After digging deep into the pockets of the commercial banks, the government has turned back to the State Bank of Pakistan (SBP), borrowing Rs28.19 billion in just one week.

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KARACHI: After digging deep into the pockets of the commercial banks, the government has turned back to the State Bank of Pakistan (SBP), borrowing Rs28.19 billion in just one week.

At the start of FY12, the government had committed to keep the level of its borrowing from SBP at zero on quarterly basis and maintain borrowing at the last fiscal year's ending stock of Rs1,200 billion. But its thrifty intentions collapsed by the end of the third month of the fiscal year and the government resorted to heavy borrowing from the central banks in subsequent months.

According to provisional data released by the SBP on Wednesday, between July 1, 2011 and February 17, 2012, the federal government borrowed a hefty Rs195.22 billion from the central bank for the budgetary support. But the subsequent week, the government hit the SBP for another Rs28.19 billion, taking the total up to Rs223.41 billion.

A year-on-year comparison shows the federal government has increased its pace of borrowing by 71.55 percent. In FY11, between July 1 and February 26, the federal government had borrowed only Rs130.23 billion. The numbers for net borrowing also suggest a similar trend: in FY11, the federal and provincial governments borrowed Rs71.8 billion from the central bank while the amount for the current fiscal stood at Rs221.billion.

Meanwhile, the commercial borrowing figures aren't rosy either. In FY11, the government borrowed Rs286.18 billion from the commercial banks, a figure that rose by a whopping 129.8 percent to Rs657.78 billion for this fiscal. All told, borrowing for budgetary support from all sources has increased from Rs357.9 billion in FY11 to Rs879 billion this year.

Heavy borrowing by the government is taking its toll on the private sector, which is being crowded out by the government. Currently, banks are holding government paper worth Rs250.5 billion, up from Rs208 billion for the same period last year.

However, analysts say the government was hamstrung by its failure to keep the budget deficit at the targeted level. While the target for this fiscal year was pegged at 4.7 percent of GDP, by the end of the first half, the government had already run up a deficit of 2.5 percent of GDP or Rs532.52 billion.

Analysts say the realisation of external inflows such as privatisation proceeds, Eurobond, Coalition Support Fund and 3G licence fees can help the government reduce the fiscal deficit and retire loans taken from the central bank.

In its latest monetary policy statement, the central bank had advised the government to initiate comprehensive fiscal reforms, particularly those related to widening the tax base and curtailing borrowing from the SBP.

The central bank had also suggested that finding a permanent solution to the energy sector crisis was also critical to reducing the subsidy burden and in improving the effective utilisation of installed productive capacity.

End.


 
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