KARACHI: Government’s borrowing from scheduled banks shrank 66 per cent year-on-year to Rs292.7 billion during the first seven months (July to January) of the current fiscal year, according to the latest data released by the State Bank of Pakistan.

However, the overall borrowing for budgetary support amounted to Rs105.9bn by the end of January. It has increased little since November, when the five-month borrowing stood at Rs104bn.

Data shows the government is too slow in borrowing from scheduled banks and far from the budgetary target. During the July-January period, the government’s borrowing from scheduled banks was Rs292.7bn compared to Rs853.6bn during the same period a year ago, a decline of nearly 66pc.

The budgetary target for the borrowing from scheduled banks for the 2021-22 fiscal year was Rs681bn, which suggests the seven-month borrowing is still far from the target.

Overall budgetary support borrowing has increased little since November

Under the International Monetary Fund (IMF) agreement, the government is supposed to keep the fiscal deficit within the range with tight monetary policy. The State Bank has raised the interest rate by 2.75pc in the current fiscal year to 9.75pc in order to increase the cost of money and to reduce the supply of liquidity.

Researchers said the low borrowing from schedule banks could be in the wake of higher financing from non-banking sources.

“The government kept the budgetary target for financing through non-banks at Rs1.241 trillion, which is almost half of the schedule bank,” said S.S. Iqbal, a money market dealer in the financial sector.

The government’s financing target in the budget shows the total required financing for the ongoing fiscal year was Rs3.42tr while the external financing was almost equal to local domestic financing. The external financing in the budget was Rs1.246tr.

“The low amount of borrowing from schedule banks during the current fiscal reflects that the government has been borrowing from non-banking sources,” said Samiullah Tariq, the head of research at Pak-Kuwait investment and Development Company.

He said the government had set higher financing from non-banking sources in the budget compared to schedules banks to keep banks liquid for the private sector.

Private sector borrowing during the seven months through January went up by 234pc compared to the same period last year. The latest data shows the private sector borrowing rose to Rs785.8bn compared to Rs234.7bn in the same period a year ago.

The flow of liquidity towards the private sector has geared up economic activities while the finance ministry likes to see an economic growth rate in the range of 5.5pc to 6pc for 2021-22 fiscal year. However, the IMF said it could be around 4pc.

Despite low borrowing from scheduled banks, government’s domestic debt has been increasing, which is the biggest hurdle in the way of a balanced budget. The growing government debt eats up maximum revenue for debt servicing. Of the total revenue, the government paid 85pc as debt servicing in the previous fiscal year while the situation could be more depressing if the revenue could not be generated to stop increasing debt.

Some economists believe the scenario could worsen during the current fiscal year, as both domestic and external borrowings have been increasing. The government’s domestic debt is increasing with financing from non-bank financial institutions like insurance and the corporate sector, which mainly invest in Pakistan Investment Bonds and treasury bills.

Published in Dawn, February 6th, 2022