KARACHI, June 9: The government plans to raise Rs27.9 billion through bank borrowing to fill in the gap between its income and expenses in 2003-04.

According to the budget documents, the government would borrow Rs27.9 billion in fiscal year July-June 2003-04 to increase its total receipts to Rs805 billion or equal to budgetary expenses.

Sources in State Bank say the budgetary estimate of Rs29.2 billion borrowing from banks is sort of tentative target. They say the final target for bank borrowing would be set in July after consultation with the National Credit Consultative Council — the apex body representing the government officials and central bankers as well as private sector representatives.

Senior bankers say the bank borrowing target is too low given the fact that the government plans to retire some of external debts before time. Though the external debts are paid in foreign currencies the government needs to pay to the State Bank the rupee equivalent of the foreign exchange amount it draws to make foreign loan payments. That is where the question of availability of rupee resources arise — and that is where the government may need to borrow more.

The government is also expecting to raise Rs10 billion through privatization of state-owned units. The budget also projects that provinces would improve their cash balances with the State Bank by Rs28 billion besides financing up to Rs30 billion the public sector development programme. The total outlay of PSDP is Rs160 billion. The government is expecting Rs115.2 billion in external receipt in the shape of non-project aid and Rs43.9 billion in project aid.

The budget projects net revenue receipts at Rs513.5 billion and net capital receipts at Rs36.7 billion.

All this added together would provide the government Rs805.2 billion of resources to match an equal expenses outlay projected for fiscal 2003-04.

Senior bankers say the Rs27.9 billion bank borrowing projected for the next fiscal year is too low and can hardly be of any help to them in employing surplus liquidity. That the banking system is going to wallow in excess liquidity through the next fiscal year is almost certain because home remittances are going to keep up the rising trend and the country may also continue to attract more direct and portfolio foreign investment.

With the bank borrowing target set at Rs27.9 billion against that of minus Rs29.2 billion for the current fiscal year there is a possibility for government’s non-bank borrowing to rise.

Bankers say the government is almost sure to borrow more from the non-bank sources in case the projections of receipts from other sources including revenue income are not realized. They also say that the Rs28 billion target set for the improvement in cash balances of the provinces is also seemingly deceptive — and in case it is not realized the government will have to increase its non-bank borrowing.

PIBS: Senior bankers say under the present circumstances the government may increase its long-term domestic borrowing — and keep its bank borrowing within the target level.

They say that increased borrowing through 10-year Pakistan Investment Bonds would serve two purposes — it would help the government generate the required financial resources to meet projected expenses over the years besides stabilizing the yield structure of the bonds.

NSS: The stabilization of the yield structure would also enable the government to contain an inevitable fall in the interest on national saving schemes.