KARACHI, Dec 17: The government borrowing for budgetary support in 5 months has reached almost 85 per cent of the limit earmarked for the whole year, 2005-06.
The State Bank of Pakistan (SBP) on Saturday released data that showed that the government borrowed Rs83.603 billion in the first 5 months of the current year, which is 23.4 per cent higher than borrowing of the corresponding period of last year.
The government consumed 85 per cent of the limit of Rs98 billion allocated for the whole year.
Experts said that the borrowing was inflationary in nature as most of the liquidity was taken from the SBP and half of these were returned to scheduled banks as a result of maturity of government papers.
The SBP supplied Rs171 billion to the government and the government returned Rs85 billion to the scheduled banks, thus adding additional money into the system causing inflationary impact.
The SBP is sitting with Rs171 billion T-bills to off-load in the market. The next T-bills auction could see big selling.
Analysts believe that the borrowing for budgetary support could lead to widening of budget deficit. The government wants to keep the budget deficit around 4 per cent of GDP.
However, the growing expenses of the government, after earthquake in Azad Kashmir and NWFP, have put pressure for higher inflows. This may be one of the reasons that it heavily borrowed from the SBP while it is yet to off-load treasury bills into the market.
The government has yet not utilized the grants and loans pledged by the international donors and foreign countries for the help of the quake’ victims. It has the option to use over $6 billion grants and loans, however, negotiations for the utilization of available funds were going on. The government was in the process of disbursing Rs80 billion among the earthquake victims.
Despite the use of these huge funds, the government has decided neither to cut the development budget, nor to delay any on-going projects. It also decided to continue with the projects included in the budget 2005-06.
“The government needs money and borrowing from the SBP and scheduled banks is easily available,” said Aamir Mateen, a researcher at a brokerage house.
The SBP would like to sell maximum in the next auction of the T-bills to be held on Wednesday. An amount of Rs76 billion is expected to mature on the same day of T-bills auction settlement.
He said that the outflow of Rs70 billion would help the SBP maintain a tight grip over the inflationary pressure. The SBP would review its monetary policy by end of this month and most of the independent economists believe that the monetary policy would continue to move on the same path.
