KARACHI, July 20: The State Bank on Wednesday issued a summary of loan borrowers which indicated that the government was the top borrower during the fiscal year ended on June 30.

According to the summary, the government’s total borrowing from both the SBP and commercial banks rose to Rs2.999 trillion — higher than the loans to the private sector ie Rs2.760 trillion.

It gives a clear picture of the economy and directions of the financial system, the backbone of economy.

The government’s failure to increase revenue generation and reduce expenses created a fiscal gap of 5.7 per cent of the GDP.

The government’s maximum use of money from the banking system resulted in poor economic growth of 2.4 per cent during FY-11.

Analysts say that most of the money borrowed by the government was used for unproductive purposes, like current expenses, higher spending to combat terrorism in the country and to feed the melting public sector giants.

Scheduled banks’ net credit to government sector rose to 1.814 trillion, a massive figure enough to speak about the prevailing trend in the financial sector.

Though banks have been making profits, economy continues to suffer.

Analysts and economists have been warning that misuse of banking money would be counter-productive and economy would decline despite higher agriculture and export growth.

In the presence of over 13 per cent main inflation and policy interest rate of 14 per cent, it is not easy for the private sector to persuade banks for loans and that too at a relatively cheaper rate.

Leading businessmen have already stated that banks are reluctant to extend loans as it involves risk and requires a lot of work for banks. The easy way is to earn money and to make short-term investment in government papers which offers over 13.5 per cent on such papers.

“The government again requires huge money as large public sector giants, PIA, Steel Mills, Wapda and Pakistan Railway, are facing shortage of money that cannot be provided from the expected revenue generation for the budget 2012,” said Mohammad Imran, a researcher on investment.

He said the fiscal gap of 4 per cent of GDP for the current fiscal year would not be easy to maintain which means more borrowing, and in the presence of ‘hollow giants’, the borrowing would be the only option for the government.

“The credit summary of the State Bank might include some more horrible figures at the end of this fiscal year,” said Imran.