ISLAMABAD – The government has reached an understanding with the State Bank of Pakistan (SBP) that it would borrow from the market to bridge fiscal deficit if the projected external inflows did not materialise during the current fiscal year. An official source said that decision was finalised after the central bank expressed concerns over the government borrowing if projected external inflows did not materialise during the current fiscal years.
Worries were related to the diplomatic standoff between Pakistan and United States on the issue of handing the US national, Raymond Davis, killer of two people in Lahore. The diplomatic standoff with US and suspension of $11.3 billion IMF programme were attributed as major hurdles in the external inflows under the Kerry-Lugar-Bermen (KLB) bill.
The US was to provide $1.5 billion during the current fiscal under the KLB, mainly for social sectors while the World Bank and ADB had committed provision of $1.0 billion and $2.0 billion during the current calendar year. The source said the government would be in tight position to bridge its fiscal from a stoppage of these funds, adding that the government agreed that borrowing from the central bank would be inflationary.
It was decided that government borrowing from the central bank would be retained at the budgetary estimate of Rs 166 billion during the current fiscal year. In case of a further need, the government would approach the market. The government borrowing from the central bank for the first seven months of the current fiscal year stands at Rs 118 billion. SBP, the source said, had also advised the government to initiate steps for a reduction in the commodity loan worth Rs 351 billion.
The federal and provincial departments have taken a loan of Rs 250 billion for wheat procurement, in addition to Rs 101 billion loan for sugar and urea imports.
Government to borrow from market to bridge fiscal deficit
