KARACHI, Nov 25: The government has borrowed Rs25 billion from the banks to fill in the gap between its income and expenses in less than four months of this fiscal year — July 1-October 25, 2003.

But during this period it has made a net retirement of Rs9.2 billion bank credit received earlier for purchase of commodities by state-run organizations, according to the latest State Bank figures posted on its website.

Under the credit plan for the fiscal year 2003-04, the government is supposed to keep its bank borrowing for budgetary support at Rs15 billion and it has to make a net retirement of Rs6 billion in commodity operations. The commodity operations cover the borrowing of the public sector organizations for purchase of agricultural commodities like wheat and cotton and agricultural inputs like fertilizers on behalf of the government.

The government’s bank borrowing of Rs25 billion in less than four months of the fiscal year does not mean that the government would surely miss the annual target of Rs15 billion.

It, however, indicates that the government’s need to borrow from banks is higher than what was projected in the credit plan. It also shows that the government is taking advantage of the low interest rate environment for raising funds from the banking system. The bulk of the government borrowing for budgetary support is raised through treasury bills and the treasury bill yields are at historic lows.

The government normally keeps raising fresh loans and retiring the old ones throughout the year. But at the end of the year it should meet the credit plan target if there is no justification for missing it.

In the fiscal year 2002-03, the government had made a net retirement of Rs56 billion bank credit instead of securing fresh loans. It had done so not only because its need for bank borrowing for budgetary support was lower but also because it had managed to raise Rs146.8 billion from non-bank sources. Major sources of non-bank borrowing were national saving schemes and long-term Pakistan Investment Bonds.

It is difficult to say whether the government borrowing from non-bank sources would keep pace this year. But so far the market has received mixed indications. People are withdrawing money from ordinary national saving schemes after a big cut in their rates of return effective from July. But the tailor-made saving schemes for public sector pensioners and widows are raising huge funds for the government.

As far the PIBs, the government has issued a jumbo issue of Rs50 billion for October-December and has auctioned a major chunk of it through two auctions. But since banks are still among major buyers of the PIBs, part of the money raised through the PIBs would be classified as the government’s bank borrowing rather than non-bank borrowing.

COMMODITY OPERATIONS: Sources close to the State Bank say there are indications that the pace of commodity operations credit retirement would slow down in November-December. The reason is that whereas the government continued net retirement in July- October its need for commodity operation financing has risen in November-December due to planned sugar procurement by the Trading Corporation of Pakistan.