KARAHCI, Sept 22: The government flushed out liquidity from banks as huge government borrowing set new record within two months of the current fiscal year.

According to latest report of the State Bank, the government borrowed Rs324 billion from scheduled banks between July 30 to Sept 7. This was 123 per cent higher than the same period of last year.

Rampant government borrowing seriously damaged the economic activities of the private sector as the sector was unable to borrow from the banking sector. Banks take no interest to serve the private sector which could be risky as compared to government papers.

The huge government borrowing has also exposed government’s ability to generate cash. It also shows poor economic health that does not increase productivity.

Each year government has been increasing its borrowing limit from scheduled banks.

During FY-12 the government borrowed Rs696 billion through banks while it had borrowed Rs616 billion in FY-11.

The two-month borrowing is record high and is almost 47 per cent of the entire government borrowing made in FY-12.

Economists and analysts predicted earlier

that being election year, FY-13 would require more liquidity as spending would be higher than the previous year.

They said economy would not be the focus of the government since elections are more important to remain in power.

The rapid growth in government borrowing from scheduled banks reflects this situation.

The government may continue to borrow with the same speed to set new records.

The borrowing has already crossed the figure of borrowing from State Bank.

According to State Bank, the government’s accumulated borrowing from scheduled banks till June 2012 was Rs2.360 trillion against a total borrowing of Rs1.704 trillion from the State Bank.

The government has now changed its borrowing pattern and has focused scheduled banks to meet its cash requirement. The less borrowing from the State Bank helped it reduce inflation.

The government is facing criticism from local and international economic bodies who are asking it to stop borrowing from the Central Bank which is inflationary in nature.

However, huge outflow of liquidity from banks has seriously damaged economy as banks have also changed their focus from private sector to government papers.