The government of Pakistan flushed out liquidity from banks as huge government borrowing set new record within two months of the current fiscal year.
According to latest report of the State Bank of Pakistan, the government borrowed Rs324 billion from scheduled banks between July 30 to Sept.7. This was 123 per cent higher than the same period of last year.
Rampant government borrowing seriously damaged the economic activities of the private sector as the sector was unable to borrow from the banking sector. Banks take no interest to serve the private sector which could be risky as compared to government papers.
The huge government borrowing has also exposed government’s ability to generate cash. It also shows poor economic health that does not increase productivity. Each year government has been increasing its borrowing limit from scheduled banks.
During FY-12 the government borrowed Rs696 billion through banks while it had borrowed Rs616 billion in FY-11.
The two-month borrowing is record high and is almost 47 per cent of the entire government borrowing made in FY-12.
Economists and analysts predicted earlier that being election year, FY-13 would require more liquidity as spending would be higher than the previous year.
They said economy would not be the focus of the government since elections are more important to remain in power.
The rapid growth in government borrowing from scheduled banks reflects this situation. The government may continue to borrow with the same speed to set new records.
The borrowing has already crossed the figure of borrowing from State Bank. According to State Bank, the government’s accumulated borrowing from scheduled banks till June 2012 was Rs2.360 trillion against a total borrowing of Rs1.704 trillion from the State Bank.