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Govt borrows more from banks

September 09, 2012

KARACHI, Sept 8: Government borrowing from the country’s scheduled banks rose Rs44 billion to Rs188 billion in the first two months of 2012-13, compared with the same period last year, according to State Bank of Pakistan data released on Saturday.

The latest SBP data reinforced the government’s dependence on private sector money which has brought the economy under pressure due to tight liquidity.

Last fiscal year, the banks were short of liquidity and were depended on injected liquidity from the State Bank, which was being witnessed this year as well.

On Sept 7, the SBP injected a huge amount of Rs446 billion into the banking system for a week reflecting the serious shortage of liquidity.

During 2011-12, the government failed to improve its revenue which forced it to borrow from banks, setting a new record of Rs696 billion from banks, compared with Rs616 billion in 2010-11.

Record government borrowing from the banking sector paralyzed the private sector as banks preferred to lend to the government than the private sector, which is reflected through a fall in the growth of the manufacturing sector for the previous three years.

The impact of government borrowing on private sector was visible during the first two months of the current fiscal as SBP reported that private sector borrowing during the first two months was negative. The sector retired Rs48.8 billion, instead of fresh borrowing. However, this was lower than Rs71 billion, the amount retired in the same period last year.

Though the government appeared as the largest client for banks, it reduced its borrowing from State Bank which has been highly inflationary.

The State Bank reported government borrowing from the central bank was negative as it retired 98 billion rupees in the first two months ending Aug. 31, compared with retiring 24 billion rupees in the same period last year.

Analysts indicated in their reports that less borrowing from the State Bank during the last fiscal year helped the government to reduce the pressure on inflation and may bring it the average inflation for 2012-13 fiscal year to single digit.

However, most of the analysts expressed concerns that being elections year, the economic growth could suffer more than previous year since the government may not exercise fiscal control.