KARACHI: The borrowing cycle for budgetary support has reversed as the commercial banks have taken the front seat for extending loans to the government while the State Bank witnessed net retirement of debt in the first 100 days of the current fiscal year.

During the same period of last year the situation was exactly reverse of what prevails now which could be a result of the agreement with the International Monetary Fund (IMF) since it restricted the government borrowing from the central bank.

The SBP reported on Wednesday that the government’s entire borrowing for the budgetary support came from commercial banks during the period under review.

The borrowing amount which reached Rs76 billion was much lower than the last year’s Rs122 billion during the said period. However, net retirement of the SBP debt reduced the overall volume of borrowing. The borrowing from commercial banks was record high compared to the net retirement during 100 days of last year.

The borrowing from commercial banks touched Rs114 billion while the government had retired Rs138 billion during the 100 days of this fiscal year. This shows the complete change in the order of government borrowing.

The government retired Rs36 billion of the SBP debt while it had borrowed a net amount of Rs272 billion during this period last year.

This was significant that the government has borrowed 42 per cent less for budgetary support than what it borrowed in first 100 days of last year. The government borrowed Rs77 billion compared to Rs133 billion it had borrowed last year.

The State Bank took strong position last year against the government borrowing from it and held the government responsible for high inflation. The average main inflation remained at 20 per cent during the last fiscal year which severely damaged the investment climate resulting into poor economic growth while it also hit hard the common people who lost the value of their income.

Analysts said no borrowing from the central bank is a good trend and would help the State Bank to arrest the inflation already slipped to 10.7 per cent in September 2009.

They said only food inflation could hit the main inflation once again as the economy was facing stress from demand and supply gap of wheat and sugar, the two most consumable food items.

‘Despite much lower supply of money due to tight monetary policy, the inflation could go higher since the subsidies on electricity and oil products have been passed on to the consumers,’ said Abid Saleem, a researcher at a brokerage house.

Last year the public sector companies especially the power sector companies were in bad shape due to huge circular debt which jammed the wheels of power producing companies. The power companies borrowed heavily from the private banks to keep functioning.