KARACHI: The federal government has borrowed an amount of Rs1.96 trillion from commercial banks during first eight months (July – March) 2022-2023 for budgetary support, State Bank of Pakistan (SBP) said on Thursday.
The government borrowed around Rs618.72 billion during corresponding months of the last fiscal year, showing sharp increase of 217 per cent.
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The surge in borrowing may be attributed to widening of fiscal deficit due to decline in revenue collection and rise in government expenditures.
The fiscal balance in the first half (July – December) of fiscal year 2022-2023 posted a deficit of Rs1,683 billion, 23 per cent YoY higher than the prior year’s deficit. In terms of per cent GDP, the deficit arrived at 2 per cent in the half year under review, same as last year’s corresponding period figure, according to data released by the finance ministry.
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The government raised funds through sale of treasury bills in auctions of 3-, 6- and 12-month commercial papers. During the last fiscal year 2021-2023, the government raised Rs3.45 trillion for budgetary support.
The interest income of the banking system is continuously growing on the back of consistent increase in interest rate by the central bank. The SBP made another hike in the benchmark interest rate by 300 basis points to 20 per cent from 17 per cent.
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The central bank raised 13 per cent or 1300 basis points during the past one and half years. The policy rate was raised by 25 basis points in September 2021 and since then the central bank adopted aggressive monetary tightening.
Analysts at Arif Habib Limited said that the policy rate hike would impact mostly the government, as it has been the largest borrower from commercial banks and the rate rise will jack up interest payments to banks.
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The higher borrowing by the government from commercial banks left little room for private sector credit offtake. The private sector borrowing from the commercial banks fell to Rs475 billion during first eight months of the current fiscal year as compared with Rs890 billion in the same period of the last fiscal year.
The rising interest rate added to the cost of doing business for the industries, which are already facing short of raw material due to non-opening of Letter of Credits (LCs) and high energy prices.
The federal government also borrowed an amount of Rs473.6 billion from the SBP during first eight months of the current fiscal year as compared with Rs53 billion in the same period of the last fiscal year.