Government inflationary borrowings continue to swell

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KARACHI – Warnings against ‘inflationary’ government borrowings from banking system seem to have fallen on deaf ears, as the banks’ lending to government has touched new highs. Analysts propose austerity and recovery plan of the squandered money as a short-term remedy to the prevailing alarming situation.
The State Bank’s provisional figures reveal that the government has borrowed Rs 337.119 billion from the banking system during the first half of current fiscal year.
The last corresponding period had seen banks cater the government’s budgetary needs through lending of around Rs 151.508 billion to the politically-embattled federal and provincial governments.
Despite serious warnings from the concerned quarters, the funds-stripped government has failed to reduce its ever-increasing reliance on the banking system which, analysts believe, was set not only to cause hyper-inflation in the country but to also cause crowding out of the growth-oriented private sector.
The SBP statistics depict that the present reconciliation-driven PPP-led coalition government, instead of expanding its revenue base, had relied on banks and had borrowed over Rs 185.61 billion or 122.5 percent from the central and scheduled banks during the period under review.
While some quarters have been talking of a shift in the government borrowing from the central bank, the SBP figures reveal the contrary. During the first half of FY2010-11, government borrowed Rs 119.646 billion from the SBP, whereas the same period in FY2009-10 had seen deposits worth Rs 19.439 billion in the government’s credit balance with the State Bank.
Further, government’s reliance for budgetary support on the scheduled banks is increasing at a similar pace with its net borrowings from the latter amounting to Rs 217.472 billion, up by 27.2 percent or Rs 46.525 billion, compared to Rs 170.947 billion in the last corresponding period. A breakup of banks lending to government sector shows that the federal government borrowed Rs 170.991 billion and Rs 225.725 billion from the state and scheduled banks respectively.
Provinces, however, have showed some restrain as they still have Rs 41.235 billion of their quota deposited in the banking system, contrary to the same period last year, during which the provinces’ had borrowed Rs 14.126 billion from the SBP. A deposit-wise picture reveals that provinces’ deposits with scheduled banks stood at Rs 5.778 billion last year against the current year’s Rs 3.549 billion.
“While government’s expenditures are growing more rapidly than its revenues, no significant measures have so far been taken to check the same even on the departmental level,” said Azfar Bin Shahid, an economic analyst. Stressing on the need for a practicable austerity plan, the analyst, citing political reasons, said that there was little or no hope for the government to materialise its recent announcement of downsizing the cabinet.
AB Shahid said that the government must recover billions of rupees squandered by corrupt officials in the state-owned enterprises (SOEs) where, according to the analyst, the officials were trying to adjust the embezzled money with business losses.
He maintained that officials, who keep a strict check on “suspects” named on the exit control list leave the country, should be deployed at the country’s airports.