KARACHI: The provincial governments have been borrowing heavily from the State Bank despite the fact that they are receiving over 57 per cent revenue from the federal divisible pool.

The transfer of allocated funds under the central pool has not been smooth, but the provinces are also responsible for mishandling even the available funds. Borrowings from the central bank may be a remedy for slow supply of allocated funds from the centre because this is an easy way to get cash. But these borrowings will cost them higher as interest on the money would significantly reduce the size of allocated revenue.

According to SBP figures on Wednesday, the provinces collectively borrowed Rs56 billion over the past four and half months.

The trend is reverse when compared with the last year’s figures. During the same period last year, the provinces retired Rs16 billion of debt from the central bank.

The Punjab government borrowed the highest amount of Rs41 billion, compared to Rs9 billion during the same period last year.

The Khyber Pakhtunkhwa government reversed its borrowing trend this year. Last year, it was a net retiree of Rs13 billion to the SBP. This year the KP government borrowed Rs14.4 billion.

The Sindh government borrowed to Rs7.7 billion. During the same period last year, it had limited its borrowing to just Rs358 million.

The Balochistan government did not borrow from the State Bank and instead retired Rs6.5 billion.

Political observes believe that the provincial governments are borrowing from the SBP to complete old projects or launch new ones to attract voters in the next elections.

But economic analysts are of the opinion that the reduced flow of the allocated funds from the centre has forced the provinces to borrow from the SBP. “There has no track record of 100 per cent timely transaction of the allocated money to the provinces, but at the same time the provinces have also never utilised even the transferred amount,” they said.

They said the provinces could adjust the borrowed amount once they received the allocated funds from the centre. It could help them complete their projects or other needs. However, they said, the interest on the borrowed money would reduce the available liquidity.

The analysts said the federal government heavily depended on borrowings, mostly from commercial banks and, therefore, it was easy to understand the difficulties in the supply of allocated money to the provinces.