Govt borrowing from central bank rises to Rs2.309trln in July-March

KARAHI: Government borrowing from the central bank more than doubled to Rs2.309 trillion during the first nine months of the current fiscal year of 2017/18, compared with Rs914.2 billion in the corresponding period of the last fiscal year.

Borrowing from commercial banks rose to Rs959.5 billion in July-March FY18 that is 3.10 percent higher than the same period of the last fiscal, State Bank of Pakistan (SBP) statistical bulletin for the month of May showed on Friday.

Pakistan’s economy is growing fast since 2012/13, but public finances remain weakened, fuelled by lower than expected growth in tax revenues and upward momentum in development spending. A higher budget deficit with low availability of external funding compelled the government to obtain unusually large credit from the SBP.

The SBP data showed that the government has repaid Rs1.349 trillion to commercial banks during the period under review, against the borrowing of Rs16.408 billion last year.

Provincial governments also made repayments of Rs188.9 billion to the banks in July-March FY18.

Public sector net budgetary borrowing in the nine months of this fiscal year stood at Rs770.5 billion, up 9.45 percent from a year ago.

The government continued to rely on the banking system to finance its budget deficit, despite an improvement in revenue growth. It also increased the target of borrowing from banks to Rs1.01 trillion for FY19.

The government has plans to raise Rs723 billion from Pakistan Investment Bonds and an estimated Rs5.9 trillion from floating market treasury bills.

It is feared that the bank borrowing will overshoot the target in FY18/FY19 owing to increase in development budget and ahead of elections due this year.

Higher public sector borrowing will raise a budget deficit and build-up domestic debt.

The government has set fiscal deficit target for the year starting in July at 4.9 percent of gross domestic product as opposed to 5.5 percent of GDP of revised budget estimate in FY18.

Economists said they expected a higher than target budget deficit in FY18 due to lack of fiscal consolidation.

Former federal minister Dr Hafiz Pasha recently said, “...there is the likelihood that the deficit could have been larger.

The provinces are unlikely to generate a significant cash surplus. This will raise the deficit estimated by the ministry of finance by almost 0.8 percent of the GDP.”

He also pointed to the revenue shortfalls. “FBR revenues are expected to fall short by an additional Rs75 billion, equivalent to 0.2 percent of the GDP.

Therefore, despite a big cut in the federal PSDP of Rs251 billion and of Rs312 billion in the combined provincial PSDP, the consolidated fiscal deficit is likely to approach 6.8 percent of the GDP in 2017-18,” he added.

Dr Pasha further said, “This is even higher than the fiscal deficit in the last year, 2012/13, of the PPP government of 6.6 percent of the GDP, excluding the retirement of the circular debt in the power sector.”