The ongoing pause in foreign funding and the, consequent, heavy government’s reliance on the State Bank’s borrowing is not only ingraining inflationary pressures in the country, but is also costing the national exchequer billions of rupees on account of printing fresh currency notes to cater the cash-strapped government’s demand for budget financing.
Whereas the economic observers tend to focus more on assessing inflationary and monetary impacts of the government’s borrowing from the State Bank, the unpopular SBP financing of government budget reflects adversely on the bank’s annual profit and loss accounts. Official statistics reveal that the SBP’s annual profits are depleting fast partly because of the bank’s surging expenditures under the head of printing of fresh currency notes.
The State Bank’s spending on the printing of new banknotes ranges on average between three and four billion rupees a year. According to SBP data, the bank incurred an expenditure of over Rs 3.25 billion for printing fresh banknotes during the financial year 2009-10.
In the financial year 2008-09, the SBP had spent over Rs 4.19 billion on currency printing, exhibiting an increase of 22 percent or Rs 934 million in monetary terms against what the central bank had spent during last financial year.
Detail of the State Bank’s current year’s currency printing expenditures, however, could not be accessed as spokesperson of the bank refused to provide the same. “We unveil such information in our annual reports only,” said SBP Chief Spokesman Syed Wasimuddin.
The SBP’s Annual Performance Review Report for 2009-10 states that: “The Bank incurs expenditure on printing of fresh currency notes for their circulation.”
Despite constant warnings from the concerned quarters on “hyperinflation” and the resultant shift in government borrowing from central to commercial banks, federal and provincial governments’ borrowings from the SBP are on the higher side and stand at Rs 112.603 billion during July-April 9, FY11. The same amounted to Rs 102 billion during the last corresponding period.
The State Bank, in its recent Second Quarterly Report FY11, has acknowledged that it was catering the cash-strapped government’s budgetary needs through printing of greater currency notes.
“We believe fiscal slippages and excessive use of central bank financing, which the public correctly sees as printing currency notes, has become increasingly instrumental in price/wage-setting behavior,” the report said, warning that the same was leading to “ingrained” inflationary pressures in the country.
Among other reasons, cost of printing new currency notes is reducing the State Bank’s net profits that, the SBP data show, had dipped by seven percent to Rs 186.736 billion during FY10 from Rs 201.698 billion in FY09. The year under review saw the regulator’s total expenditures reach Rs 22.057 billion, including Rs 3.259 billion incurred under the head of currency printing against Rs 18.227 billion of last year, an increase of Rs 3.830 billion or 21 percent over the previous year.
