Borrowing hits 63pc of target in 4 months: Budgetary support
By Shahid Iqbal
KARACHI, Nov 25: The federal government borrowing for budgetary support has reached 63 per cent of the credit plan for 2005-06 within four months. The accelerated government borrowing for the budgetary support may hit its plan for keeping budget deficit below four per cent. Net borrowing for the budgetary support from July 1 to November 12, 2005 stood at Rs76.971 billion as compared to Rs53 billion during the corresponding period last year.
Maximum ceiling for the government’s borrowing was kept as Rs120 billion in the annual credit plan for 2005-06.
According to the latest official data, the State Bank was the main supplier of the credit which supported the government to borrow from the banking sector.
The borrowing from the banking sector during the last four months was Rs68 billion compared to Rs39 billion in the same period last year, showing an increase of 74 per cent.
Analysts believe that the government is at the crossroad as it requires borrowing to meet its expenditure, while on the other side it is making efforts to bring inflation down just close to 8.3 per cent for October 2005.
“If the current trend of borrowing persists, the government may cross the limit it imposed on itself to curtail budget deficit,” said an analyst. He said that 3.8-3.9 per cent budgetary deficit was ideal for the government as inflation was already over eight per cent.
Many analysts believe that the devastation caused by the Oct 8 earthquake would compel the government to use its money for an immediate support of the affected people. The government will mostly depend on the main lender — the State Bank.
“The $5.8 billion pledged by foreign countries and international donors would take time to materialize, while the government is in quick need to fulfil the immediate requirement,” said Aabid, an analyst at a brokerage house.
He said since most of the pledged amount was in the form of loans, the government would have to sit with each donor for resolving the terms and conditions that required more time.
The government after getting signals from international donors, however, announced to increase its cash help from Rs20 billion to Rs80 billion for the earthquake-hit areas.
Mr Aabid said the government was afraid of inflation hike that had already hit the poor and middle class. Inflation multiplied in 2004-05 and jumped to over nine per cent from just 4.5 per cent, compelling the government to curtail money supply with tight monetary policy.
State Bank Governor Dr Ishrat Husain has recently pointed out that the monetary growth has been almost zero for the last four months and hoped that inflation would remain within the target. However, the higher supply of currency in the wake of huge influx of foreign aid for the quake-hit areas could add fuel to inflation.
“The credit plan and borrowing estimates should be revised after earthquake which changed the dynamics of the economic growth. The reconstruction work in the quake-hit areas needs big monetary support which could inflate the prices, but at the same it could help the economy to benefit from the reconstruction process. The government needs to review the budgetary targets,” said another analyst.
