KARACHI, March 29: In less than nine months of the current fiscal year the government borrowing for budgetary support has risen to nearly Rs70 billion - more than four times the full fiscal year target of Rs15 billion.
Data released by the State Bank shows that between July 1, 2003 and March 13, 2004 the combined borrowing of the federal and provincial governments for budgetary support rose to Rs69.9 billion.
The target set for full fiscal year July/June 2003/04 is Rs15 billion. In the comparable period of last fiscal year the government borrowing for budgetary support was minus Rs34 billion.
It means that the government had rather made a net retirement of Rs34 billion instead of making fresh borrowing in the first eight and a half months of last fiscal year.
But as the government retired Rs33 billion debt secured earlier for financing purchase of commodities through state-run agencies net government sector borrowing to Rs37 billion.
But this too was more than three times the target of Rs10.6 billion set for net government sector borrowing for the full fiscal year. In the corresponding period of last fiscal year net government borrowing was minus Rs71 billion.
Bankers say the government borrowing has been on the rise during this fiscal year primarily because the government wants to take advantage of low treasury bills rate.
Average yield on three-month to one-year T-bills currently range between 1.5-2.0 per cent down slightly from 1.65-2.14 per cent at the start of this fiscal year. But historically the yields are at their lowest providing an incentive to the government to borrow cheap money from banks.
Central bankers say the fast-paced increase in the government borrowing for budgetary support in the first three quarter does not mean it cannot bring it down to the targeted level of Rs15 billion at the close of this fiscal year.
But they say that in order to do so the government will have to increase its non- bank borrowing both through national saving schemes as well as through sale of Pakistan Investment Bonds to non-bank buyers.
The government is all set to auction a substantial amount of PIBs next month but the size of the issue is still not known. Central bankers also point out that a larger than targeted bank borrowing of the government has been helpful in keeping low interest rates at a time when banks have been wallowing in excess liquidity.
Banks have been so excessively liquid that in eight and a half months of this fiscal year not only the government has made Rs70 billion borrowing for budgetary support but private sector borrowing has also shot up to Rs230 billion.
This is more than two and a half times more than the full fiscal year target of Rs85 billion and more than three times the private sector borrowing of Rs78 billion in the first eight and a half months of last fiscal year.
As both government borrowing as well as private sector borrowing has been much higher than in the comparable period of last fiscal year their impact on overall monetary growth has also been phenomenal.
Monetary assets or M2 recorded a sharp increase of 12.10 per cent in eight and a half months to March 13, 2004 leaving far behind the full fiscal year target of 11.06 per cent.
This high growth in M2 is also higher than in the comparable period of last fiscal year when it was at 11.66 per cent.
But what makes the growth in monetary assets in this fiscal year essentially different than that of the last fiscal year is that this time net domestic assets of the banking system accounts for more than 82 per cent of the growth in M2.
In the comparable period of last year the situation was different: it was net foreign assets of the banking system that had entirely fuelled growth in M2. In fact net domestic assets had shown negative growth.
Central bankers say an NDA-based expansion in the monetary assets is good for the health of the economy in the sense that larger private sector credit helps grow industries and increased government borrowing helps in reducing the budget deficit. But they do admit that a low growth in NFA means the country has not been as much comfortable on its external sector as it used to be.
