KARACHI: The government’s borrowing surged 93 per cent to Rs595 billion during the first five months (July 1 to Nov 20) of this fiscal year compared to Rs309bn it raised from the scheduled banks in the corresponding period last year, the State Bank reported on Wednesday.

Recently the finance minister claimed that the strategy is now to push growth and create employment, but the government has accelerated the pace of borrowing creating severe liquidity problem for banks and the State Bank has to inject Rs1.3 trillion into the system every week.

While the finance minister stressed financing for small and medium enterprises (SMEs) sector being the backbone of the economy, the government leaves no liquidity with banks to finance SMEs or other sectors of the economy.

Also read: Analysis: Economy: where are the borrowers?

A record borrowing of Rs1.413tr was made by the government from the scheduled banks in the last fiscal year. However, the government retired Rs227bn loans of the State Bank.

The private sector was the direct victim of heavy government bank borrowings reflecting in poor credit-off take of just Rs40bn in first five months of this fiscal compared to Rs58bn in the same period last year.

Analysts say the debt retirement of the central bank helped keep the inflation at low level. The inflation is currently at decades low and the interest rate has gone down to 6 per cent.

Despite this very attractive scenario, the private sector credit offtake failed pick up. Analysts have been suggesting the government to avoid borrowing from scheduled banks to push up economic growth.

The large borrowing supplemented the budgetary deficit but revenue shortfall is still haunting the government. The borrowing for budgetary support rose to Rs206bn during the period under review.

The revenue shortfall compelled the government to tax more to bridge the Rs40bn gap in the revenue collection.

The new tax has been widely criticised but the government is bound to raise this much amount as per the agreement with the IMF. The trend shows the government will continue to borrow in the wake of low growth and low revenue collection.

Published in Dawn, December 3rd, 2015