Govt to break ‘all’ records in budgetary borrowings

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Borrowings by the government and non-government sectors from the banking system surged by a massive 13 per cent or Rs752.741 billion during the previous fiscal year, FY2010-11. The State Bank of Pakistan (SBP) provisional data shows that the government and non-government sectors borrowed over Rs6.490 trillion from the central and scheduled banks during July-June FY11 against Rs5.737 trillion of FY10. Of the total Rs6.490 trillion, banks lent over Rs2.999 trillion or 46.2 per cent, and Rs3.491 trillion or 53.7 per cent, to government and non-government sectors, respectively.
When compared with Rs2.426 trillion and Rs3.311 trillion of FY10, these figures show an upsurge of 24 per cent and 5.4 per cent in the respective borrowings of both the sectors. In monetary terms, government and non-government sectors borrowed Rs572.781 billion and Rs179.960 billion respectively, from banks during FY11. However what should be worrisome for economic managers of the country is the fact that 46 per cent of bank credits to government, amounting to over Rs2.999 trillion, remained “unproductive” for the ailing economy.
Analysts said that the cash-strapped government had spent the borrowed money to finance its ever-widening budget deficit, something that generated no economic activity for the country. “The borrowed money was used for the government’s current expenditures that is non-productive in nature,” analysts explained.
The resource constrained government contributed in deepening the inflationary pressure by borrowing over Rs1.185 trillion from the central bank. It also borrowed over Rs1.814 trillion from scheduled banks, leaving less money for the private sector. Perhaps wary of persistent warnings of a possible “hyperinflation” from official and unofficial economic observers, the government arrested its budgetary borrowings from the State Bank at Rs1.185 trillion, down nominally by 0.2 per cent against Rs1.187 trillion in the preceding year. The scheduled banks’ net lending to the government sector amounted to Rs1.814 trillion against Rs1.238 trillion of FY10. While their investment in the risk-free and heavily-weighted government securities, through purchase of Market Treasury Bills and Ijara Sukuk (Islamic bonds), increased by 50 per cent to Rs2.047 trillion against Rs1.165 trillion of FY10. The banks’ direct loans to the cash-strapped government, however, shrank to Rs409.909 billion, compared with Rs423.912 billion of FY10. Increased reliance of the Government on scheduled banks resulted in the crowding out of the private sector. During the year under review, the central and scheduled banks’ respective advances to the non-government sector accumulated at Rs29.891 billion and Rs3.461 trillion. This depicts a slight increase of 1.7 per cent and 5.4 per cent that accounts for Rs5.4 million and Rs179.456 billion.
Banks credited Rs424.394 billion to Public Sector Enterprises, Rs121.349 billion to Non-Banking Financial Institutions and Rs2.915 trillion to the private sector. Within the private sector, banks invested Rs155.574 billion in private securities and shares, besides extending direct loans of Rs2.760 trillion to private borrowers. Banks lent Rs2.431 trillion to private sector, Rs18.029 billion to Trust Funds and Non-Profit Organizations, Rs294.011 billion to persons and Rs76.406 billion to their employees. While advances under consumer financing and miscellaneous head aggregated, respectively, to Rs217.605 billion and Rs16.369 billion. In view of their increasing Non-Performing Loans that crossed the Rs500 billion mark during FY11, banks cut their personal loans by 8.5 per cent at Rs294.011 billion against FY10’s Rs321.478 billion. Rs217.605 billion’s consumer financing by the banks also saw an 11 per cent decline when tallied with Rs244.810 billion of FY10. FY12 is widely expected to see the funds-starved government breaking all previous records of its budgetary borrowings from banks as the chances for foreign financing appear to be far and few.