GOVT. BORROWING FROM COMMERCIAL BANKS AT A HEAVY COST
July 16 - 22, 2012
The incumbent PPP led government has set new records of borrowings from domestic commercial banks during the outgoing financial year, never witnessed in the 65 years history of Pakistan including its own rule of past four year, bringing the debt level to an unsustainable level. It sounds unbelievable but it is a fact that the government has borrowed from scheduled banks in Pakistan an staggering amount of Rs 1300 billion during the financial year 2011-12 ending on June 30.to meet its budgetary expenses.
This reckless borrowing by the government from the scheduled banks is attributed to policy shift in borrowing pattern from the central bank to commercial banks as the government agreed on the insistence of the State Bank Of Pakistan (SBP) which wanted its lending to the minimum and within limits of rules and regulations. According to the analysts, commercial banks were also allured by this opportunity as they were faced with the problem. of surplus liquidity because of less demand from trade and industrial sectors due to grim economic situation because of prolonged load sheddings and power shortage which had forced them to work on two shifts basis instead of three.. To meet still higher demand from the government the SBP continued injecting huge sums to keep the system liquid. In simple words the central bank was providing funds to the scheduled banks which were lending to the government (at higher rates of interest) to meet its budgetary shortfall mostly because of its huge unproductive expenses. Due to this layman easy approach the rulers have landed the economy in the worst situation.
The present government is following this approach since it came into power during the first about three years it mostly relied on external borrowings. Foreign sources however dried up when the government failed to implement the economic reform agenda prescribed by the IMF and consequently its aid package was terminated forcing the government more on domestic borrowings. Through printing new currency notes, the SBP helped the government for a considerable time until it became too scandalous besides causing abnormal increase in the inflation which forced the authorities to change the mode of borrowings. Experts describe this .approach as an economically disastrous way.
Because of the present government's reckless borrowing from both internal and external sources during its four years rule,--mostly for unproductive expenses and meeting the high cost of bad governance, Pakistan has landed in the worst debt trap of its history., According to the reports quoting official data, the PPP led government during its four years rule since 2008 has borrowed more than all the previous governments had borrowed during the previous 60 years combined The country's total debt-both internal and external-stood at about Rs 5000 billion in the first 60 years of its independence but increased to over Rs 6000 billion in just 48 months of the present government in power. According to experts, every child being born in Pakistan these days is indebted to the tune of over Rs 6500 It may be pointed out that these assessments, published in March 2012, were based on the data up to the end of year 2011.
What the present government is doing these days is in utter disregard and in violation of Fiscal Responsibility and Debt Limitation Act 2005 However, the incumbent government does not seem to realize the gravity of the situation and continues to finance the large public sector deficit through borrowing from all possible sources and at whatever terms available and thereby increasing the debt burden at an alarming speed. This is the most worrying aspect of our economic mismanagement and sharply deteriorating public financing.
The government that is borrowing from the banking system at this rate is not only adding to intense inflationary pressures but also keeping the interest rate high, crowding out the private sector and mortgaging the economic future of the next generation. Normally, sustainability of debt by a country is determined to national GDP. In case of Pakistan the sustainability of public debt depends on growth in tax revenues, and in case of foreign debts, on growth in exports. Both have lagged considerably behind.
To help the country avoid total bankruptcy, leading economist have pleaded with the government to improve governance, strengthen institutions, reduce its expenses, increase its revenues through taxing the rich including the landed aristocracy and control tax evasion and cut corruption in the government departments specially the FBR through drastic measures and an iron will.