KARACHI, Oct 29: Both the government and public sector enterprises (PSEs) made record borrowing during the three and a half months as it reached Rs271 billion and Rs58.8 billion, respectively.

The record pumping of liquidity into PSEs during the first three and a half months of the current fiscal 2008-09 showed the severe sickness of these government-owned entities.

The State Bank reported that PSEs borrowed the amount about equal to cumulative borrowing made during the last three years.

The massive liquidity used to pump into the Water and Power Development Authority, Wapda, which is still highly inefficient as far as its output is concerned.

The government is facing serious shortage of liquidity for its spending and to continue its development projects. The government has yet not rationalised the petroleum prices despite the fact that oil prices fell by 60 per cent in the world market. The oil is generating substantial revenue for the government.

While the PSEs are sucking higher amount of liquidity, the government has also geared up its insatiable need of borrowing. The government borrowed Rs271.746 billion from the State Bank to meet its budgetary deficit.

This is extremely contrary to the last year performance when the government borrowed just Rs10.9 billion during the same period. However, till the end of the last fiscal 2007-8, the government borrowed about Rs688 billion from the State Bank, which was the strongest factor for the inflation of the economy.

The State Bank has been asking the government to reduce borrowing through SBP and find other resources like bonds to generate revenue. However, the government under serious liquidity crunch failed to explore any other resource for its budgetary support.

The government has withdrawn most of the subsidies on oil and other commodities to increase its revenue but still it relies heavily on the borrowing from the State Bank.

“The government must reduce the lavish style for running its affairs and immediately stop spending on other than necessary items or sectors,” said an analyst.

The serious question before the analysts and economists was that what would happen if Pakistan embraces IMF. The possible agreement would certainly stop government’s borrowing from the State Bank.

“In case of an agreement with IMF, the government would stop borrowing from SBP, which means that in the absence of other sources, development projects would be rolled back and thousands of employees would lose their jobs,” said the analyst.