KARACHI: The State Bank has appeared as the main source of liquidity for the government, and private banks for Public Sector Enterprises (PSEs), which shows that the state of revenue collection remains poor.

The inflation-prone borrowing from the State Bank is heading fast towards the record figure of trillion, while the government assured that this would be zero at the end of each quarter.

The government failed to bring down its borrowing from the SBP to zero in the first quarter, and it does not seem to achieve that target in the second quarter too.

The government borrowing rose to Rs750 billion from July 1 to Nov 8 for the budgetary support. It has already created inflationary pressure that forced the central bank to tighten the monetary policy and interest rate was increased to 10 per cent.

The government retired Rs38bn to the SBP during the same period of last year.

What is surprising is the speedy borrowing of Rs42.5bn by the PSEs from scheduled banks during the said period.

Since coming to power, the government has been trying to privatise the loss-making PSEs, but there is no sign of improvement either on working of these PSEs or privatization plan.

The State Bank reported massive fall in net foreign assets (NFAs) which squeezed the monetary expansion by 50pc compared to last year. The NFAs of the banking system fell by Rs202bn compared to Rs46bn last year.

Due to this fall, the monetary expansion was limited to 2.05pc compared to 4.17pc showing the low flow of liquidity in the economy.

It also reflects from the presence of higher liquidity in the banking system. The government’s borrowings from the private banks are still negative (debt retirement of Rs308bn).

The stock of government debt from scheduled banks at the end of FY13 was Rs3.32tr. The government is unable to retire the entire debt through borrowing from the State Bank while it also needs liquidity to meet the fiscal deficit target.

Banks are also eager to invest in government papers but the liquidity looks in surplus in the banking system.

The SBP on Friday mopped up Rs219bn from the banking system for six days through open market operations, reflecting higher presence of liquidity in the market.

“Deposits in the private banks have improved which requires more investment in the government papers,” said a senior banker, adding that this time advances to private sector have significantly increased compared to last year.