Cash-strapped government’s budgetary borrowings from banking system continue to swell and accumulated to Rs708.145 billion during first four months of current financial year.
The amount depicts an exorbitant increase of 177 per cent when compared with Rs255.311 billion the funds-starved central and provincial governments had borrowed from banks during corresponding months last year. In monetary terms this mammoth increase in government’s budgetary borrowings account for Rs452.834 billion. Central bank, however, has been successful in significantly decreasing volume of its budgetary loans from State Bank that, analysts believe, is inflationary in nature. Central bank reported that during July-Nov 4 (FY21) the resource-constrained government borrowed Rs95.750 from SBP billion, 46 per cent less than Rs179 billion it had taken during the same period in FY11. Some quarters, however, perceives that dip is part of government’s new covert strategy to borrow indirectly from State Bank. This means that the embattled government, amid dim chances of financing from its foreign lenders and donors, first injected billions into banking system and then borrowed the same from commercial banks.
Friday also saw central bank pumping a huge sum of Rs342.750 billion into banking system at 11.52 per cent annual rate of return to avoid an otherwise imminent liquidity crunch. On the other hand, scheduled banks remained major financers of government’s ever-widening fiscal deficit, which SBP counted at Rs1.194 trillion during FY11 against Rs929.061 billion of FY10. Leaving little space for the growth-oriented private sector, government is borrowing extensively from commercial banks and secured, during period under review, over Rs612.39 billion. Compared to Rs76.514 billion, of corresponding period last year, this amount shows a huge growth of 700 per cent or Rs535.881 billion. Banks’ credit to private sector is constantly depleting and shrank to negative Rs31.531 billion against last year’s positive Rs671 billion. Banks’ credit to non-government sector came down to negative Rs262.960 billion against negative Rs19.774 billion in FY11.
On the back of their excessive lending to non-productive public sector, banks’ net domestic assets (NDAs) marked an increase of Rs64.32 billion and accumulated to Rs168.40 billion compared to Rs104.16 billion in corresponding period of FY11.
According to SBP figures, of total budgetary support SBP extended Rs31.393 billion to federal and Rs50.075 billion to provincial governments. While scheduled banks’ lending to centre and provinces stood at Rs611.232 billion and 13.227 billion, respectively. Monetary expansion is also on lower side due to reduced foreign assts of banking system that contracted to negative Rs106.377 billion compared to last year’s positive Rs57.118 billion. According to SBP, Broad Money, also called M2, shrank to 0.936 per cent or Rs62.102 billion (in monetary terms) against 2.79 per cent or Rs161.278 billion of corresponding period in FY11. Circulation of money also slid to Rs183.139 billion from Rs195.015 billion previously. Economists warn that since much of the bank finances are being eaten up by public sector for non-productive purpose of running of government, the country was likely to miss its 4.2 per cent GDP growth target for the current year. They suggest that banks’ advances must go to private borrowers who, through generating economic activity, create jobs that would lead to economic growth in the poverty-hit country.
