KARACHI: The government’s borrowing for budgetary support increased by 8.8 per cent year-on year during 9MFY19, reported the State Bank of Pakistan (SBP) on Friday.

The budgetary borrowing rose to Rs876 billion from July to April 5 FY19, compared to Rs805bn during the same period last fiscal year, representing an increase of Rs71bn or 8.8pc.

The government is under serious criticism over the ballooning domestic debts which Finance Minister Asad Umar recently justified in order to pay interest on debts. Pakistan’s budget deficit came in at 6.6pc of the GDP in FY18 and with the increase in budgetary borrowing this year, coupled with limited revenue collection, could further push the fiscal deficit.

The trend remained the same as the government borrowed from SBP and retired debts to scheduled banks during the year. From July to Apr 5, an amount of Rs3.733 trillion was borrowed from SBP while Rs2.588tr of scheduled banks was retired.

The government says no borrowing from schedule banks is the policy to keep maximum liquidity available for the private sector but latest data show the private sector has increased its borrowing compared to last year.

Private sector credit offtake jumped by 30.5pc to Rs577bn during 9MFY19, against Rs442bn in same period last year — a jump of Rs135bn.

Last year the private sector credit offtake was at record high but this year the borrowing stands even higher but financial market experts attribute it to the rupee devaluation and higher inflation.

In a year, the local currency has devalued by over 36pc while inflation during 9MFY19 rose to 9.4pc. Sources in financial institutions said that banks are lending at very high rates due to frequently increased policy rate which now stands 10.75pc.

They said the banks have been lending despite low economic growth projection, which increases risks of defaults. It means the lending rate for buyers would be in the range of 15-20pc, they believe. However, higher lending rate is also one of the key reasons for default in the financial market.

Published in Dawn, April 13th, 2019