Government borrowing jumps 58.48pc to Rs1.439trn in FY18

KARACHI: The government borrowing to finance its budgetary deficit vaulted 58.48 percent during the last fiscal year as the gap between spending and revenues continued to widen owing to a huge shortfall in receipts, official figures showed on Friday.

Stats released by State Bank of Pakistan showed the borrowing reached Rs1.439 trillion in the FY2018 compared to Rs908 billion borrowed in 2016/17.

The SBP’s data revealed that during the last fiscal year net borrowing by the government sector, comprising four provincial, Azad Jammu & Kashmir and Gilgit-Baltistan government was also higher than it was a year ago.

On the other hand, the government borrowed Rs1.495 trillion from the banking system during the last fiscal year, which was 32 percent higher, compared to the borrowing in the same period of previous year.

However, the government repaid Rs76.754 billion to commercial banks in FY2018 against the borrowing of Rs179.3 billion during 2016/17.

Analysts say commercial banks, owing to higher interest rates expectations, are just interested in lending to the government on a short-term basis, which is not suitable for the government that needs cash for a longer tenure.

Dr Ashfaque H Khan, the dean at NUST School of Social Sciences, said Today’s deficit indicated an unfavourable trend in the public finances during the last fiscal year.

“It looks clear that there will be a challenging fiscal environment for the next government.

The IMF’s forecast of the budget deficit of 6 percent of gross domestic product for 2017/2018 will be overshot,” Khan said adding the deficit reached over 6.1 percent in the second week of previous month.

The SBP has also been asked to stop clearing government cheques in order to curb deficit from further increase.

Many analysts expect the budget deficit could be 7-8 percent of GDP during the last fiscal year amid increasing development and elections spending.

The central bank will auction Rs5.550 trillion worth of Market Treasury Bills (MTBs) and Pakistan Investment Bonds (PIBs) both fixed and floating in the first quarter of current fiscal year to help the government finance budget deficit, according to auction target calendar issued by the SBP on late Thursday.

The government has already proposed a 73 percent year-on-year increase in borrowings from local banks (up to Rs1 trillion) for FY2019.

The SBP sold Rs331 billion worth of treasury bills against the target of Rs1.5 trillion at an auction on Wednesday, with lower participation from banks. The acceptance was mainly concentrated in the three-month category.

Analysts believe the renewed interest in short-term papers to be a sign of heightened expectations of continuing aggressive rate reversals by the SBP, especially as inflation continues gather pace along with fears of another potential devaluation in in the coming months on the cards.

The SBP’s data also showed that broad money supply saw an expansion of 10.59 percent during last fiscal year, compared with 13.69 percent in the corresponding period of previous year.

Furthermore, credit to the private sector rose to Rs769 billion during 2017/18 from Rs747 billion a year earlier.