KARACHI: Government borrowing from scheduled banks crossed Rs1 trillion in the first eight months of this fiscal year.
According to State Bank’s latest report, the government borrowed Rs1.029tr during July-February 2014-15 from banks, reflecting poor health of the fiscal management.
During the same period last year, the government borrowed Rs318bn from scheduled banks for budgetary support. From the State Bank, the government last year borrowed Rs367bn, and during the current fiscal year, it retired Rs434bn of the Central Bank.
Despite this changed strategy of borrowing from scheduled banks instead of the SBP, the volume speaks a lot about the fiscal management. The rising domestic debts are increasing the size of debt-servicing which is already the largest spending head of budget.
The rising debt-servicing clearly indicates that the government failed to bring required structural fiscal reforms to generate revenue.
Experts have been warning the government to bring reforms and set a limit of borrowing from scheduled banks, but there was no response from the government side.
In FY14, bank borrowing stood at Rs170bn while in FY13 it was Rs960bn but the amount never crossed Rs1tr in a fiscal year.
The government expects higher economic growth of over 5 per cent this year, but revenue generation and fiscal imbalances indicate that the economy was not growing as per targets set in the budget.
Rapid growth in bank borrowings had started from the very first month of the current fiscal year. In July, interest payments on domestic debt showed an annualised growth rate of 80.5pc. The amount of interest alone rose to Rs188bn compared to Rs104bn in July of FY14.
The government kept on selling the high-yield Pakistan Investment Bonds which further complicated the situation and liabilities started mounting. So far, the government has sold Rs3.888tr PIBs till end of January 2015.
According to another report of the SBP, debt servicing as per cent of GDP in FY14 was 4.1pc and 40.7pc of tax revenue. The report said the debt-servicing was 27.5pc of the current expenditure in FY14 while it was 24.7pc in FY13.
The debt stocks as percentage of the GDP rose to 42.9pc in FY14 from 42.3pc. It sharply rose from 31.3pc of the GDP in FY10.
The rapid increase in the domestic debt will further inflate stocks of domestic debt, including the PIBs and would escalate the debt-to-GDP ratio.