KARACHI: Provincial governments have sufficient liquidity as they have been retiring billions of rupees loans of the State Bank of Pakistan (SBP) and scheduled banks.

A latest report of the SBP indicates that the Sindh government, which had been complaining about non-provision of the promised money by the federal government for development, retired the highest amount of Rs38 billion of the State Bank since the beginning of this fiscal year.

The report shows that all provincial governments, as well as Gilgit-Baltistan and Azad Jammu and Kashmir (AJK), retired SBP debts.

While the federal government has been setting new records of borrowing from scheduled banks each year, provincial governments retired their scheduled banks’ debts also.

The report also notes that all provincial governments have been running their affairs comfortably while the federal government is cutting the development expenditure as it is facing fiscal deficit that compels it to borrow heavily from all available sources.

The detail shows that Punjab retired Rs14.5bn, KP Rs18bn and Balochistan Rs15bn. Gilgit-Baltistan retired Rs5.5bn and AJK Rs981 million.

The federal government has also been retiring State Bank’s debts but at the same time, it has borrowed record amount from scheduled banks.

In the first four months, the government retired Rs132bn of State Bank while simultaneously it borrowed Rs487.7bn from scheduled banks.

The borrowing trend shows that it would be impossible for the government to keep the fiscal deficit below 5 per cent. The increasing revenue shortfall has also made it difficult for the federal government to meet its expenses.

The government has set fiscal deficit at 4.3 per cent of GDP for FY16 while the fiscal deficit in FY15 was 5.3pc.

Independent economists are worried that Rs40bn shortfall in revenue of FBR in the first quarter of this fiscal year would push up fiscal deficit to more than 5pc.

The government’s recent move to pacify the agriculture sector by providing over Rs100bn package would put more burden on the budget and ultimately hit development expenditure. The development expenditure has already been slashed by 20pc for this fiscal year.

Exports have been declining while the main export earning textile sector demands support of the government to improve its performance.

However, it looks difficult to improve the performance of the government in the wake of severely hit cotton production by floods.

Officially, the country could face over 23pc shortfall in the cotton production this year.

Analysts believe that the government borrowing from scheduled banks will exceed from the last year’s figure of Rs1.4 trillion.

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