KARACHI: The government’s borrowing for budgetary support has surged by 86 per cent in 1HFY19, the State Bank of Pakistan (SBP) revealed on Friday.

According to latest data, the federal government borrowed Rs722 billion during the six months (July-Dec 28), compared to Rs387.7bn in same period last year – an increase of Rs334.3bn.

The increased borrowing coupled with low revenue collection is threatening to breach 5.1pc cap set for budget deficit in FY19. The government is concerned about the rising fiscal deficit, especially in the backdrop of talks with the International Monetary Fund, which has traditionally put caps for budgetary deficit levels.

Revenue shortfalls have forced the government to borrow more in order to fund its expenditures. In 5MFY19, revenue shortfall was reported as Rs112bn, which the Federal Board of Revenue attributed mainly to slashing of sales tax on petroleum products and withdrawal of tax on mobile phone cards.

According to the data, government has borrowed Rs1.436 trillion from SBP during the first half of this fiscal year, compared to Rs288bn in same period last year.

This massive borrowing reflects the government’s growing need of liquidity; however, it kept retiring its costly debt from the scheduled banks. During 1HFY19, the government retired up to Rs535.8bn of scheduled banks, versus Rs356.3bn in corresponding half of last year.

The trend also points to government’s tendency of relying on central Bank for borrowing instead of scheduled banks.

About four years back, the government had borrowed through Pakistan Investment Bonds which offered up to 12pc return with banks heavily investing in it. On Dec 21, the government and a consortium of Islamic Banks also agreed to launch Rs200bn Islamic bonds to reduce circular debt.

Published in Dawn, January 5th, 2019