Interim govt to borrow Rs 200b more than elected predecessors


If the cash-strapped government’s budgetary borrowing from the central and scheduled banks is any criteria, the newly-appointed caretaker regime is expected to leave its elected predecessors far behind in violating the fiscal discipline.
Economic analysts have already forecasted that the current fiscal year would see the country’s fiscal deficit swelling beyond 6 percent or Rs 4.5 trillion against the budgeted 4.7 percent or Rs 2.9 trillion for the outgoing financial year ending on June 30th this year.
The State Bank of Pakistan (SBP) on Friday reported its quarterly target calendar for the auction of the Market Treasury Bonds (MTBs) and Pakistan Investment Bonds (PIBs). Through the sale of these government securities, the central bank borrows billions for budgetary support of the funds-starved federal and provincial governments on a quarterly basis.
The fourth and last quarter of FY13, ranging from April to June, said the SBP, would see the bank raising Rs 1.4 trillion for the Federal Ministry of Finance.
Of the total amount, Rs 1.325 trillion would be borrowed through selling MTBs of three, six and 12-month maturities while Rs 75 billion would be borrowed from primary dealers, mostly banks, through PIBs of three, five, 10 and 20-year maturity periods.
What is special about this quarter is the fact that the caretaker, and not the elected government, would be dealing with the fiscal affairs.
The interim regime of predominantly retired judges, led by Prime Minister Justice (r) Mir Hazar Khan Khoso, would be under close scrutiny by critics for its fiscal decision besides its primary job of holding free and fair elections in the country on May 11.
However, if budgetary borrowings are any criteria, the caretaker federal government seems to have chosen the path of its predecessors who, economic observers believe, left the legacy of a huge domestic and external debt.
If compared with the outgoing last quarter, January-March FY13, the caretaker federal government’s Rs 1.4 trillion budgetary bank borrowing target is in excess by Rs 200 billion of what the previous elected government had borrowed in the preceding quarter.
The elected government, according to SBP, had borrowed from risk-averse banks, a total of Rs 1.2 trillion during January-March FY13. Of the borrowed money, Rs 1.125 trillion had been raised through auctioning treasury bills while Rs 75 billion worth investment bonds were also sold out.
While the elected government’s “additional requirement” for budgetary loan during the last quarter stood at Rs 41.057 billion, that of the caretaker regime stands at Rs 119.287 billion.
This means the interim government would be borrowing Rs 78.230 billion or 65.5 percent more than the previous rulers under the head of “additional requirement”.
Economists believe the caretaker government would be carrying a backbreaking fiscal pressure emanating primarily from heavy budgetary support that the resource-constrained government has been taking from banks to cater to its ever-burgeoning non-development spending.
“One could expect continued pressure carrying over to the new political setup and the primary task to be handled is to make a first step towards improving the root-cause of the overall economic crises,” said analysts at Arif Habib Research.
They said chances were dim for the fiscal budget deficit to stand in the range of the budgeted 4.7 percent.
“With fiscal indicators turning not-so-positive as the fiscal year unfolds, actual deficit could easily be higher, clocking in at 6.3 percent of the GDP,” analysts added.