KARACHI: Government borrowing from commercial banks has again crossed Rs1 trillion this year, indicating weak fiscal position despite higher foreign inflows.

The State Bank of Pakistan (SBP) in its latest report, released on Tuesday, stated that the government borrowed Rs1.088tr during the first nine months (July-March) of this fiscal year, showing no significant improvement compared to Rs1.150tr a year ago.

“This shift in borrowing from SBP to commercial banks has enabled the government to meet the IMF targets for end-September and end-December 2015 set under the Extended Fund Facility,” the central bank said in its second quarter report for this fiscal year.

The fiscal authorities are financing their deficit through borrowings from external resources and commercial banks. The government retired Rs347bn debt of the State Bank during the period under review compared to Rs491bn a year earlier.

This created shortage of liquidity in the banking system. In the money market, the SBP injected liquidity through open market operations (OMOs) and maintained the cut-off rate very close to the policy rate.

Private-sector credit (PSC) expanded by Rs352.9 billion in the first half of FY16 compared to Rs222.3bn in the same period last year. The State Bank said the expansion in PSC was broad-based as a large number of sectors (including textiles, fertiliser, retail trade, construction and electricity) availed higher credit in FY16.

Significant developments in the credit market also included higher advances for fixed investment purposes to construction-related sectors, telecommunications, land transport, and electricity and gas production, and continuation of higher consumer credit for housing and automobiles.

However, the credit off-take by the private sector almost stopped after the first half, increasing by less than Rs1bn in the next three months indicating a negative picture related to this particular development. Borrowing stood at Rs353.8bn in July-March.

Another negative development was the very high increase in currency circulation which doubled during the nine months compared to the same period of last year.

Published in Dawn, April 7th, 2016