Who else could be expected to be law abiding when the government, which is constitutionally meant to execute the laws formulated by the country’s legislatures, tends not to respect the laws of the land.
The cash-strapped federal government for the last couple of years has constantly been, what the central bank termed in a recent report, breaching the State Bank of Pakistan (Amendment) Act 2010 on account of its quarterly borrowing limit from the State Bank. According to SBP Act, the federal government’s debt to the central bank as on April 30, 2011 had to be retired in the next eight years till 2019.
Contrary to legal provisions, the government’s budgetary borrowings from the State Bank has increased instead of being brought in conformity with the legal requirement. The central bank, in its second quarterly report on State of Pakistan’s Economy said, since April 2011 the federal government’s outstanding debt to the SBP had actually grown from Rs 1.445 trillion to Rs 1.575 trillion up to end-December 2013.
This shows a growth of Rs 130 billion in the budgetary support the funds-starved government secured from the central bank. Having largely depended on the scheduled banks during the first quarter, July-September FY13, the second quarter, October-DecemberFY13, saw the government shifting its focus away from the commercial banks to the State Bank. “As a result, the government has breached the zero quarterly borrowing limit from SBP during the second quarter,” noted the central bank in its report for 2QFY13.
This year, the official data show that from July 1 to April 5 the government borrowed over Rs 942.74 billion from the banking system. This is compared to Rs 928.55 billion of the corresponding period in FY12.
Of the total, the borrowings from scheduled banks amounted to Rs 879.004 billion against Rs 631.655 billion of last year. The State Bank was also approached for a Rs 63.737 billion loan during the period under review.
These huge budgetary borrowings led to the expansion of monetary growth in the inflation-hit country to 8.66 percent or Rs 662 in monetary terms. The same months last year had seen monetary expansion, also denominated as broad money or M2, standing at 7.98 percent or Rs 534.20 billion. The central bankers believe that the country’s fiscal picture was explanatory of the federal government’s “compulsion” to borrow. The current marginal foreign inflows on account of investment, aid and other reimbursements, the analysts said, were making Islamabad more and more reliant on foreign and domestic credits to cater its ever-increasing budgetary needs. The State Bank said it was the receipt of $ 1.8 billion Coalition Support Fund (CSF) that had made “all the difference” during the first half of FY13 to keep the ever-widening fiscal deficit restricted at 2.6 percent of GDP.
A high-level delegation from Pakistan is currently negotiating a fresh bailout package of $ 5-7.5 billion from the IMF in Washington where the international lenders from the IMF and World Bank had gathered to attend the spring meetings of the two Bretton Wood institutions. Also, the Pakistani team would be engaging Americans for the reconciliation of $ 1.5 to $ 2.5 billion the former claims on account of war reimbursements.
Cash-strapped govt’s debt stands at Rs 1.5tn since April 2011
