The cash-strapped government’s budgetary borrowings from the banking system have swelled beyond Rs 1 trillion. According to central bank data, the funds-starved federal and provincial governments borrowed from the central and scheduled banks over Rs 1.051 trillion during July-May 11, FY12.
This depicts an absolute increase of Rs 431 billion or 69.49 percent when compared with corresponding period of FY11 when the banks had lent over Rs 621 billion to the government.
Of the total budgetary borrowings, the government borrowed over Rs 594 billion from the scheduled banks and Rs 458 billion from the State Bank. In same months last year, the government borrowings had accumulated to over Rs 398 billion and Rs 223 billion from the banks.
Over FY11, this shows an upsurge of 49 and 105 percent in the government’s borrowings from the central and commercial banks, respectively.
The 105 percent raise in government loans from the State Bank negates the former’s tall claims that it was decreasing its financing dependence on the central bank to avoid an imminent inflationary impact of the same.
Further, the analysts warn that the government’s heavy reliance on commercial banks for budget financing was also adversely affecting the growth prospects in the country.
The economic observers believe that the banks’ massive lending to the government was crowding out the private sector, which worldwide is regarded the engine of growth in developing countries.
During the period under review, July-May 11 FY12, the banks extended credit to the private sector worth Rs 235 billion against last year’s Rs 108 billion. The banks’ overall credit to the non-government sector nosedived to Rs 93 billion from Rs 119 billion of FY11. The analysts from official and unofficial quarters agree that the banks were going risk-averse given the current recessionary climate that has crippled the borrowers’ capacity to repay, something evident from the banks’ increasing Non-Performing Loans (NPLs).
According to central bank, the bad debts of the banks have aggregated to over Rs 6 billion despite some improvement on the recovery front.
However, the banks’ heavy investment in the heavily-weighted government securities has doubled their Net Domestic Assets (NDA) to Rs 881 billion against FY11’s Rs 481 billion. On the other hand, the Net Foreign Assets (NFA) of the banks stood at negative Rs 272.23 billion against positive Rs 181 billion of last year.
The monetary expansion in the country has grown by 9.09 percent or Rs 608.68 billion in monetary terms partly because of the government’s massive budgetary bank borrowings.
Though lower than last year’s 11.47 percent, over 9 percent expansion in the supply of money is considered by the analysts as high.
The currency in circulation aggregated to Rs 204.34 billion against 255.45 billion if corresponding months in previous year. The analysts suggest that the government take immediate steps to improve the current poor law and order situation which was keeping the most-needed foreign as well domestic investment in the country at bay.
