KARACHI – While the cash-starved federal government seems to have finally embarked upon a serious campaign to generate more money through taxing the taxpayers, almost half of its revenues, 45 percent, are going to its creditors from the central and scheduled banks.
This was revealed by the State Bank of Pakistan (SBP) in its Monetary Policy Statement issued on Saturday. The State Bank said while the government’s total debts had witnessed a year-on-year growth of 14.8 percent, some 45 percent of its tax revenues were being consumed by the “interest payments”.
Reportedly, the government borrows money from the central and scheduled banks at, what some analysts believe, an exorbitant mark up rate of ranging from 13 to 20 percent. “By end-December 2010, the year-on-year growth in government’s total debt was 14.8 percent, with 45 percent of the tax revenue being absorbed by interest payments,” it noted with concern.
According to the bank, the government had already borrowed a substantial amount of Rs 329 billion from the banking system during July 1 to March 12 FY11 increasingly through auctioning the short maturity period, three-month, treasury bills (MTB).
The state bank warned that if the government failed to attract private sector investment for economic growth, the country’s already ailing economy would find it more difficult to generate sufficient revenues to meet even the government’s debt obligations in the future.
More challenging it would be especially with the terms of trade shifting in favour of those sectors having modest contribution to the tax revenues, it said. On the government’s part, the state bank said Islamabad was yet to announce long-awaited incremental requirements of the government for fourth quarter of FY11 as well as a debt plan focusing on long-term borrowings.
The central bank, showing satisfaction of relatively the ‘disciplined’ government borrowings from the State Bank, said the rising public debts and reduced availability of bank credit for the private sector at higher interest rates had created challenges for monetary management in terms of striking a balance between containing inflation and promoting economic growth.
On the banks’ lending to private sector, the bank said, the year-on-year growth in private sector credit was only five percent up till March 12 this year. While the government’s borrowing from the SBP had been contained to end-September 2010 level, growth in public sector borrowing was still very high and that of the private sector low, it said.
SBP predicted that given the growing budgetary and non-budgetary financing needs of fiscal authorities for the procurement of commodities and addressing the circular debt-related issues, the likelihood of an ease in such borrowings was “small”. “This means that risks to macroeconomic stability could increase in the next fiscal year,” it warned.
