‘Hyperinflation’ on the cards as govt borrowing hits new high

KARACHI – Government budgetary borrowings from the banking system have continued to balloon as it has touched 104.2 percent during first half of the current fiscal year despite analysts’ fears that the country is inching towards an unprecedented hyperinflation. The funds-starved governments, both federal and provincial, borrowed Rs 439.259 billion from the central and other scheduled banks during July-Dec 2010-11 against Rs 215.053 billion in the last corresponding period.
A comparative study of the State Bank’s provisional figures reveals that during the period under review, banks lending were approximately Rs 224.206 billion greater subject to government’s escalating budgetary needs. While the government seems more inclined towards seeking short-term solutions like external and domestic borrowings to its balance its economic imbalances, analysts fear “hyperinflation” imminent in case of government’s failure to meet the fiscal deficit through broadening its revenue base and not inflationary bank borrowings.
Dr Hafeez Pasha, addressing the 26th Annual General Meeting of Pakistan Institute of Development Economics (PIDE) on December 29, warned the government against increasing its budgetary support reliance on the banking system that was being catered through printing excessive currency notes that, if not reversed, he said, could over time lead to hyperinflation.
The renowned economist defined hyperinflation as a situation when the current double-digit backbreaking inflation turns into triple-digit. Such warnings and advises, however, seem to have been falling on deaf ears in the corridors of power at Islamabad where the country’s economic managers seemingly tend to break its all previous records of economic mismanagement.
According to State Bank, during July-Dec 2010-11, the government borrowing from the central bank stood at Rs 261.337 billion marking a phenomenal increase of 350.4 percent or Rs 203.324 billion when compared to the July-Dec 2009-10. Further crowding out the private sector, the government borrowed around Rs 20 billion more from the scheduled banks which, during the said period, lent some Rs 177.923 billion to the government against Rs 157 billion in the last corresponding period.
The State Bank is said to have been printing around Rs 2.0 billion daily to cater to such a higher government’s reliance on it for budgetary expenditures. Fully alive to gravity of the situation, SBP Governor Shahid H. Kardar is, reportedly, restlessly looking at the Parliament for the passage of the proposed SBP Act, which would empower the central bank to limit the government borrowing by 10 percent of the GDP.
A government-wise breakup of the SBP statistics reveals that the federal government’s borrowings from the central bank skyrocketed to Rs 301.487 billion during the first half, undergoing an astronomical upsurge of Rs 702.7 percent or 263.928 billion when compared to Rs 37.559 billion in the last year.
Whereas the provinces had withdrawn some Rs 35.149 billion against its Rs 67.002 billion stocks as of end-June 2010. As expected, the banks’ lending to the private or non-government sector remained downward at Rs 129.433 billion. During the last corresponding period, banks had credited Rs 146.256 billion to the private sector, over Rs 16.82 billion more than the current year. With the analysts ringing alarm bells against the politico-economic expediency, the PPP-led coalition government, which lost on Tuesday one more of its political stalwarts in the face of Governor Punjab Salman Taseer to a deadly attack in the federal capital, seems far from mending its ways to avoid the foreseeable threat of hyperinflation.