Borrowing mounts pressure on economy
KARACHI: The government borrowings from both the State Bank as well as scheduled banks have gone beyond the records set last year giving a clear indication of higher inflation and much higher than the projected fiscal deficit for the ongoing financial year.
The State Bank reported on Tuesday that the government borrowing from the scheduled banks in first seven and half months of this fiscal year crossed even the borrowing it made during the entire fiscal year 2011.
At the same time it is 166 per cent higher (Rs674 billion) than the borrowing made during the same period of last fiscal (Rs263 billion).
According to the State Bank the government had borrowed Rs616 billion during the entire fiscal year 2011 and the current total of seven and half months of 2011-12 rose to Rs674 billion.
“Higher fiscal deficit of 7 per cent with double digit inflation will not allow the State Bank to cut the interest rate after March,” said analyst Mohammad Imran. The State Bank maintained the 12 per cent interest rate for February and March. The State Bank has also predicted that the average inflation for the current fiscal will be in double digit which means less chance for cut in the policy interest rate.
Analysts said most of the countries facing financial crisis since 2007 had been pumping massive liquidity to boost their economic performance. However, in case of Pakistan supply of liquidity is a risk in the presence of double digit inflation which ultimately hurt the economic growth.
“If the money remains costly for us, there is no chance for better economic growth,” said Aamir Aziz, a textile exporter and manufacturer.
He expressed the fear that the debt crisis in Europe might hit exports creating more problems for Pakistan, which depends largely on textile export (60 per cent) for foreign exchange earning while half of the textile export goes to Europe and United States.
Both the IMF and the State Bank have been calling for drastic cut in expenses to bring down the rising fiscal deficit but the government seems to have failed mainly on account of low revenue and poor economic growth.