20.7 C
London
Tuesday, July 27, 2021

Pakistan govt borrowing swells to Rs58bn

- Advertisement -spot_imgspot_img
- Advertisement -spot_imgspot_img

ISLAMABAD: Due to Pakistan economy’s burgeoning income-expenditure gap, the government’s borrowing for budgetary support increased to Rs58.24 billion during the first month of fiscal year 2008-09, depicting an increase of 40.95 per cent compared to borrowing of Rs41.32 billion in the corresponding month of the last fiscal.

During July 1 to July 26, government’s borrowing from the State Bank of Pakistan stood at Rs30.07 billion and from scheduled banks Rs28.17 billion, while in corresponding month of the last fiscal borrowing from the central bank stood at Rs41.32 billion however Rs4.07 billion were retired of
scheduled banks. Economists believe that expansionary government fiscal policy is also considered as a source of diluting effects of the State Bank of Pakistan’s tight monetary policy formulated for capping high inflation.

It is feared that running a loose fiscal policy may crowd out private investment in the country. Currently, inflation is touching a record high which is not only affecting the macroeconomic indicators but also severely disturbing social life of millions of poor Pakistanis. Besides, the loose policy had also crowded-out private investment in the country. Though public spending help in developing right infrastructure for encouraging private investment, however if surge in the government spending
is not accompanied by increase in government revenue and proportionate hike in real GDP, it creates public debt and inflation respectively.

The higher public spending may put upward pressure on the interest rates and thus discourage private investors to invest. It is worth-mentioning that during fiscal year 2007-08, fiscal deficit stood at Rs777 billion or 7.4 per cent of GDP against Rs398.8 billion (4 per cent of GDP) targeted for the
fiscal under review.

In order to bring back the budget on a sustainable track, fiscal deficit for 2008-09 is proposed at 4.7 per cent of GDP i.e. Rs582.3 billion. During July-June 2007-08, the government borrowed Rs461.28 billion from banks (scheduled and central bank), which is about 469 per cent or Rs380.28
billion more than the actual target of Rs81 billion for fiscal year 2007-08, while Rs359.26 billion (or 352 per cent) more than, it borrowed in corresponding period of the last fiscal 2006-07 (Rs102.015 billion). More worrisome was that the government borrowing from the SBP increased to alarming Rs633.17 billion as against Rs58.57 billion it retired last year.

Of scheduled banks, it retired Rs171.89 billion against Rs160.59 billion it borrowed in corresponding period of the last fiscal. It is also feared that if the government was unable to attract external
inflows as a result of low remittances, slow down of privatization proceeds, the borrowing volume could balloon to unbearable level that could further affect the government’s efforts to rein in the inflationary pressure and bring down the poverty level in the country.

The State Bank since last year has time and again advised the government to reduce its dependence on bank borrowing especially, on SBP in order to control inflation and support the monetary policy. According to the bank, the excessive borrowing from the SBP spur the inflationary pressure in economy due to excessive money circulation in economy.

Resultantly, it becomes a source of demand pull inflation, a scenario when too much money chases too few goods. Few months back, the central bank also asked the government that the fiscal deficit be contained in years ahead to reduce the risk of crowding out of the private investment. —Internews
________________________

- Advertisement -spot_imgspot_img
Latest news
- Advertisement -spot_img
Related news
- Advertisement -spot_img

LEAVE A REPLY

Please enter your comment!
Please enter your name here