Funds-starved government continues to rely heavily on the easy money with its budgetary borrowings from the risk-averse banks surging by Rs60.904 billion or 32 per cent by October 21st of current financial year. According to State Bank data, during July-October 21 the resource-constrained government’s bank borrowings accumulated to Rs252.284 billion against Rs191.380 billion it borrowed during the corresponding period in FY11.
Of the total bank credits, the government raised Rs67.515 billion from the central bank while Rs184.770 billion were sought from the commercial banks, which though facing a severe liquidity crunch, are extensively investing their available money in the risk-free and heavily-weighted government securities.
The government, fearing inflationary consequences of borrowings from the State Bank, also seems to have shifted its borrowing focus to the scheduled banks whose – according to SBP data – advances to the cash-strapped government skyrocketed by Rs130.998 billion or 244 per cent during the period under review. Against the current Rs184.770 billion, the government had borrowed Rs53.772 billion from the scheduled banks during July-October 21 last year. This period, however, saw the government’s budgetary borrowings from the State Bank shrank significantly from Rs137.607 billion to Rs67.515 billion. The reduction, some quarters believe, is part of the government’s move to borrow indirectly from the State Bank. Some analysts apprehend that the government, after seeing the chances for foreign financing getting dimmer, was first raising billions from the commercial banks and then asking the regulator to inject more liquidity into the system through continued reverse repo-operations. According to central bank, of the total budgetary support the SBP extended to the federal and provincial governments, Rs37.353 billion against Rs170.046 billion went to the former’s account and Rs34.994 billion in the latter’s. The provincial governments also seem to have embarked on a borrowing spree as up to this date last year they had maintained a credit balance of Rs22.778 billion with the State Bank. The governments in the center and peripheries heavily borrowed from the scheduled banks that during the said period lent Rs185.755 billion to the federal government and Rs13.227 billion to the provinces. The loans the two governments had collected from the banks last year had amounted far less to Rs48.544 billion and Rs4.935 billion, respectively. This, the analyst said, present a gloomy picture as the growth oriented private sector was nowhere in sight in terms of bank financing. The SBP figures substantiate such a view showing that the bank advances to the private sector was downward. The private sector borrowers were having an increased credit balance of Rs61.462 billion with the banks against last year’s Rs29.552 billion. On the other hand, the banks were more interested in lending to the loss-making Public Sector Enterprises (PSEs) which sucked up Rs18.836 billion of liquidity from the banking system against a credit balance of Rs25.274 billion these had maintained with the banks in FY11. This risk-averse behaviour of the banks, the official and unofficial economic observers warn, would reflect adversely on the government’s growth targets as most of the bank finances were being consumed by the non-productive public sector. The bank advances should, ideally, for the private borrowers who, through generating economic activity, create jobs that further lead to economic growth in the country.
