State Bank warning

State Bank Governor Dr Shahid Kardar has told the Senate Standing Committee on Finance and Economic Affairs, which met with Senator Ahmed Ali, that the federal deficit could cross 6 percent of GDP if the present government continued its spending habits, and could reach more than Rs 1000 billion. It has already reached 1.5 percent of GDP during the first quarter of the current fiscal, and could go up to 6 percent during the entire fiscal. Explaining the dangers of this to the Committee, Dr Kardar told it that if government borrowing was from the State Bank, that would be inflationary; if it was from the commercial banks, it would squeeze the private sector. Perhaps the Governor should have pointed out that the second path was also directly anti-growth, because money diverted to government expenditure is unproductive, and does not result in any growth whatsoever. The government has perhaps decided on the second option, because Finance Secretary Dr Waqar Masood Khan told the Committee in his testimony that the target for GDP growth had been revised down by the government from 4.5 percent to less than two percent. He blamed the floods for this decline, but the government deficit probably has more to do with it. Even the path of borrowing from the State Bank, which is directly inflationary, also leads to a lowering of growth because of this – Nation