The government budgetary borrowings from the banking system have witnessed a sharp rise of 75 per cent or Rs316.823 billion and have skyrocketed to Rs735.647 billion during a period ranging from July 1 to June 11 during the concluding financial year.
Given the present upward trend in the government bank borrowings, inflationary pressures are widely seen as remaining persistent in at least the near future due to robust monetary expansion in the country.
The State Bank of Pakistan (SBP), in its Second Quarterly Economic Performance Report for FY11, conceded that it had been catering to the government’s persistent demand for budgetary support through the ‘inflationary’ practice of printing currency notes.
The central bank recorded that Broad Money expanding to 14.50 per cent or Rs837.693 billion during the period under review against last year’s expansion of 9.72 per cent or Rs499.385 billion in monetary terms.
Broad Money, also called narrow money and M2, is a measure of money supply that includes demand deposits and any monies held in easily accessible accounts at commercial banks.
Analysts opine that the resource-constrained government’s budgetary financing from the banks is reflective of the fact that economic managers had failed to convince the government to keep non-development expenditures in check as well as bringing the highly distorted economy back on track.
Economic observers also underscore that the US-led war against terror and the loss-making state-owned enterprises (SOEs) are taking a heavy toll on the national exchequer. According to Economic Survey 2010-11, the long-lasting war against terrorism had burdened the ailing economy of Pakistan to the tune of Rs1.5 trillion during FY11.
The State Bank of Pakistan has said the cash-strapped government’s aggregate borrowings from the banking system accumulated to Rs735.647 billion during the period under review. In the same period last year, the government had borrowed Rs418.815 billion from the banks, down 75 per cent or Rs316.823 billion of the current year’s total.
During the period, the government borrowed over Rs230.717 billion from the central bank and Rs504.930 billion from the scheduled banks. This was against Rs211.863 and Rs206.952 billion of July-June 11 FY10, respectively.
On the other hand, risk-averse commercial banks lending to the private sector is not growing at a pace proportionate to advances to the public sector. The SBP data illustrates that during the 11-month period under review, banks extended Rs87.389 billion to the private sector, which is 15.6 per cent or Rs11.8 billion more than what they had lent in Fiscal Year 2010.
In the same timeframe, banks had extended advances amounting to Rs75.582 billion to the private sector, which is considered to be the engine of growth worldwide. Analysts, however, claim that many of the private investors had flown out of the terrorism-hit country where the poor security and law and order had made the investment climate highly vulnerable. They, therefore, see no significant impact of less banks credit on the private sector. According to senior economist, Dr Shahid Hassan Siddiqui, “the private sector is not keen on investing in Pakistan.” The latest SBP data also outlines a grim scenario of money aggregates in the country with many of the observers foreseeing that prevailing inflationary pressures, standing above 15 per cent currently, will continue to climb.
With monetary expansion swelling to 14.50 per cent in the country, the SBP calculated, during the period under review, money circulation in the country at Rs284.048 billion against Rs197.381 billion of FY10. ‘Other’ deposits with the SBP swelled to Rs3.538 billion, compared to Rs1.319 billion of the corresponding period, last year. The total Demand and Time Deposits, including the Residents Foreign Currency Deposits, ballooned to Rs550.107 billion, registering an increase of Rs249.42 billion when compared with Rs300.684 billion of FY10.
Analysts believe that the government’s heavy dependence on heavily-weighted bank financing would render it unable to achieve the Rs825 billion or four per cent (of the GDP) budget deficit target for FY2011-12. They are also concerned about the increasing distortions in the ailing economy which, they say, is seeing a dismal situation when it comes to the declining ratios of tax and investment to the GDP.
