Govt borrowing from banks up four-fold to Rs402 billion

KARACHI: Government’s borrowing from banks rose nearly four-fold to Rs402 billion in the first quarter of the current fiscal year of 2015/16, the central bank said on Thursday, reflecting its reliance on domestic debt to finance its deficit.
The State Bank of Pakistan’s (SBP) monetary aggregates data showed that the government borrowed Rs110 billion during the same period (July-September) of 2014/15.
Economists said the increase in borrowing was largely due to shortfall in federal tax revenue.
The Federal Board of Revenue collected Rs600 billion in the first quarter of the current fiscal year, lower than the quarterly target of Rs647 billion fixed by the government.
Economists said the public borrowing may continue to go up this year to plug the gap between receipts and expenditures.
“Government will continue to meet its financing requirement largely through commercial banks unless it is able to increase tax receipts,” said Sakib Sherani, chief executive officer at Macroeconomic Insight.
“Privatisation receipts and/or increasing foreign inflows can also relieve some of the pressure on bank borrowing in the short run.”
An economist said the government is figuring out ways to broaden its tax net.
“Pakistan has mentioned, in its policy intention document of eighth review under three-year economic reform programme sent to the IMF, about the widening of the tax net to generate the necessary resources for infrastructure and social spending while ensuring sound fiscal position,” he said.
“But the tax and non-tax revenues remain stalled and the government’s spending to finance budget deficit continues to edge up.”
The economist said lack of financing sources and floor on borrowing from the central bank under the International Monetary Fund’s extended fund facility may increase reliance of the government on local banks.
Several economists are hopeful that administrative measures being taken by the government will reap fruits in terms of fixing public finances in times ahead.
“Indeed, we expect growth of tax receipts to improve. Otherwise, borrowing will remain up, creating problems for the government to manage its fiscal deficit at the level of 4 percent of GDP in FY16,” said an economist. The government is improving the effectiveness of the debt policy coordination office through its integration into the ministry of finance’s core functions.
It will build up its staffing capacity for the swift implementation of an optimal borrowing strategy.
An analyst said banks are the major beneficiary of the consistent rise in the government borrowing.
“The SBP provides them (banks) with liquidity funds through open market operations to ease cash crunch and they lend them to the government,” he said.
“Banks’ holding of government bonds surged to Rs5.66 trillion as of June 30 this year, representing more than 90 percent share in total investments.”
Higher bank borrowing is a risk to fiscal imbalances as well as a cause of accumulated domestic debt.
“An amount of Rs13 trillion has been added by the former governments to the domestic debt over the past eight years,” said Dr Ashfaque Hasan Khan, former economic adviser to the government.