KARACHI: The government borrowed Rs751 billion from the State Bank of Pakistan (SBP) in the first 22 days, ie from July 1 to July 22, of the current fiscal year.
The trend shows an apparent shift in the government’s borrowing strategy as it had been only borrowing from banks and the corporate sector for the past two years to meet its fiscal gap.
In fact, the government retired SBP’s debt in the previous two fiscal years which forced it to borrow from scheduled banks. The government retired Rs368bn in FY16 and Rs462bn in FY15.
Analysts have previously indicated that the government could tend to borrow from the central bank in the current fiscal year since it has completed the agreement with the International Monetary Fund (IMF). Under the Fund’s programme, the government was barred from SBP borrowing.
Inflation at four-decade low is another reason behind government’s borrowing from the State Bank. Continued borrowing through the central bank leads to a rise in inflation, but the present low inflation has enough capacity to absorb the inflationary pressures.
Government borrowing from the commercial banks reached new heights in the last two years — it borrowed Rs1.364 trillion in FY16 and Rs1.413tr in FY15.
This huge government borrowing crowded the private sector out. In the preceding fiscal year, private sector’s credit off-take accounted for just 33 per cent of the government borrowing.
The latest report of the State Bank showed that the government has now started retiring debt of commercial banks which reached Rs508bn. This was against the previous year’s trend when the government borrowed Rs72bn from commercial banks from July 1 to July 22.
Though the government has changed its borrowing pattern, the State Bank remained cautious and kept the interest rate unchanged at 5.75pc in its latest monetary policy announced on July 30.
The monetary policy showed concerns that inflation could rise during the current fiscal year as the State Bank is expecting inflation to remain in the range of 4.5pc to 5.5pc. A rise in Consumer Price Index inflation to 4.1pc in July from 3.2pc in June proved the State Bank’s fears were right.
Inflation may go up further if the government continues to borrow from the central bank.
