Govt borrowing from SBP falls Rs100b

KARACHI: Net government borrowing from the State Bank of Pakistan (SBP) has declined by Rs100.663 billion since May 2010 to stand at Rs1.187 trillion at the end of June 2010.

However, according to data released by the SBP, loans issued to the government by the central bank increased during the same period by Rs3.027 billion to Rs117.188 billion. Government deposits also rose by Rs10.723 billion to Rs103.343 billion.

Government borrowings from the central bank have spiked by Rs43.485 billion in FY10 compared to FY09.

Conversely, government borrowing from scheduled banks increased by Rs83.862 billion in June over the previous month to reach Rs1.238 trillion. Compared to June 2009, the government’s net borrowing from banks has shot up by Rs380.763 billion.

“Majority of the borrowing from the SBP in the latter half of the previous fiscal year was by provincial governments to meet fiscal deficits,” commented AKD economist Asad Farid.

He explained that “the government did not borrow heavily for commodity operations in recent weeks. However, some of the provinces had announced surplus budgets that eventually posted deficits and these had to be financed through borrowing from the SBP and private banks.”

Credit disbursement to the private sector grew by just over Rs97 billion compared to the previous fiscal year to reach Rs2.749 trillion.

Analysts asserted that heavy dependence of the government on loans from the central bank has continued to drive out the private sector, making it difficult for companies to obtain loans. Loans to the private sector stood at Rs2.258 trillion in FY10. Loans to the textile sector led private sector borrowing from the SBP, amounting to over Rs470 billion in FY10.

Net credit to the government sector has increased by Rs424.248 billion since June 2009, when it stood at Rs2.002 trillion, to reach Rs2.426 trillion in FY10. Net credit disbursements from the central bank amounted to Rs5.737 trillion in FY10, as compared to Rs5.165 trillion in the previous fiscal year.

“The most disturbing sign in government’s debt allocation is that there is no repayment capacity being established,” commented economist A B Shahid. He explained that “government-owned entities like Pakistan Steel Mills and Pakistan Railways are continuing on their path of economic ruin and power sector debt issues are still unresolved.”

He added that “unless the government reduces borrowing from the SBP and improves repayment, successively greater portions of the budget will go towards loan repayment instead of development.”

Published in The Express Tribune, July 27^th, 2010.