KARACHI, June 4: Bankers have observed that the next fiscal year would keep the banking sector under stress because of liquidity shortage as government plans to meet most of its fiscal deficit through internal resources.

They viewed that the government is not properly paying back the borrowed amount to banks which is a major cause of concern.

Bankers said that in the presence of government as a major borrower, there is a little hope for private sector to enlarge their share in bank borrowing.

“The State Bank has been re-rolling Rs250-300 billion in the banking sector each week to protect the banking sector from liquidity crunch while the situation is still unchanged,” said a senior banker.

The government borrowed Rs939 billion from the banking sector for the current fiscal year while total fiscal deficit is expected to touch Rs1.165 trillion by the end of the year on June 30.

The figure shows the government met 84 per cent of its fiscal deficit through banking sources which flushed out liquidity and kept the private sector disillusioned.

Bankers said government’s borrowing trend would persist in the next fiscal year and it would bring more stress for banks, running out of liquidity.

This will not only alienate private sector but interest rate will also remain high which means that there would be low economic growth.

“Reliance on bank and non-bank borrowing will keep interest rate high with no major growth expected in private sector credit,” said Topline Research in its report over budget.

The government has set a target of Rs1.105 trillion for FY13 and will again rely on internal resources.

Shrinking participation of private sector in bank borrowing for the last five years has kept a strong grip over economic expansion not allowing the economy to grow.

The worst three years average growth of 2.6 per cent did provide enough space for the economy to grow more than 3.7 per cent during the current fiscal year.

While crisis-hit economies of US and European countries have been pumping huge money in the private sector to accelerate growth, Pakistan is facing a reverse policy of shrinking economic growth as less month is available for the private sector.

“If interest rate remains as high as 12 per cent, banks would not help private sector and will take no risk to put their money in trouble,” said SS Iqbal, a money dealer in the banking sector.

He said in the presence of double-digit inflation private sector could not sustain lending rate in the range of 12 to 16 per cent per annum.

The high interest rate would erode its profitability; increase cost of doing business while borrowing would be more risky.