In July-September 2014-15, the Government of Pakistan borrowed Rs110 billion from Pakistani banks. According to the State Bank of Pakistan’s monetary aggregates data, in July-September 2015-16, the Government of Pakistan borrowed Rs402 billion from Pakistani banks. Economists said the increase in borrowing was largely due to shortfall in federal tax revenue. The Federal Board of Revenue collected Rs600 billion in the first quarter of the current fiscal year, lower than the quarterly target of Rs647 billion fixed by the government. Economists said the public borrowing may continue to go up this year to plug the gap between receipts and expenditures. “Government will continue to meet its financing requirement largely through commercial banks unless it is able to increase tax receipts,” said Sakib Sherani, chief executive officer at Macroeconomic Insight. “Privatisation receipts and/or increasing foreign inflows can also relieve some of the pressure on bank borrowing in the short run.” The figures may not contain any cause for alarm, which is a relief, but they serve as a reminder nonetheless that the government’s indebtedness continues to rise even as it enters the last year of its programme with the IMF. Almost Rs1.6tr remain to be shifted to bank balance sheets as part of the same process in the months to come. This is creating a perverse incentive for the banks that can see almost endless risk-free lending to the government for the foreseeable future and are therefore left with no incentive to undertake private-sector credit expansion. The results are all too apparent: deceleration in deposits and negative credit to the private sector, which basically means people are shying away from bringing their money to the bank, and businesses are retiring loans rather than taking them. Overall, these trends point to a very unhealthy state of affairs in the economy, and the root cause of the malaise is largely fiscal in nature. The fact that these trends persist even as the government has crossed its halfway mark, and the fund programme is entering its twilight months, does raise some valid questions about the sustainability of the economic turnaround the government claims it has brought about.
pk.shafaqna.com
