Overdraft from SBP: Federal government breaches limit

ISLAMABAD: The federal government, and not the provinces, has breached the limit of borrowing from the State Bank of Pakistan (SBP) as balances of all provincial governments are in credit, except Punjab government which has also borrowed half of the allowed overdraft limit, an official said. He said that Punjab government has borrowed Rs 18.74 billion from the State Bank of Pakistan by January 7, against the allowed overdraft limit of Rs 37.20.The rest of the provinces and Azad Kashmir have not borrowed anything from the central bank so far. Instead, their balances are in credit. The borrowing limit of the provinces was fixed equivalent to six weeks’ wages of their employees but the limit was enhanced after salaries of employees were increased by 50 percent in the budget. With the increase in the limit, the Punjab government can borrow Rs 37 billion from the SBP; Sindh government Rs 15 billion; KP government Rs 10 billion; and Balochistan Rs 7.10 billion.

He said that so far Sindh, KP and Balochistan have not borrowed anything from the central bank. Instead, their balances are in credit. Sindh government balance is Rs 16.40 billion in credit against Rs 15 billion borrowing limit while the balance of Khyber Pakhtunkhwa is Rs 17.66 billion credit against the allowed overdraft limit of Rs 10.40 billion.Balance of Balochistan government is also in credit with the State Bank of Pakistan against the borrowing facility of Rs 7.10 billion. The credit balance of Azad Kashmir is Rs 193.61 million against the facility of Rs 2.71 billion overdraft.The official claimed that borrowing of the federal government has also decreased substantially in recent days, particularly after Coalition Support Fund (CSF) inflows and profit of the SBP. Borrowing from the SBP was earmarked at Rs 166 billion in the budget for the current fiscal year while the government has already borrowed Rs 400 billion -Rs 327 billion from the SBP and Rs 82 billion from commercial banks. According to the official, the federal government’s borrowing from the SBP has decreased to Rs 180 billion after Rs 127 billion deposits by the federal government (CSF and State Bank profit and some increase in revenue).

A meeting recently held in the Finance Ministry advised the federal and provincial governments to place lowest reliance on borrowing from the central bank in the near future; and borrow from the commercial banks to meet their financing needs. The borrowing from the central bank is considered to be primary driving force of inflation.According to Ministry of Finance, since the early 1970s the last three years (2008-to date) were marked by the worst inflation ever witnessed, attributable largely to continued weakness of fiscal framework. The government’s failure to contain the fiscal deficit, combined with a sharp decline in external inflows, has led to heavy reliance on bank borrowing by the government. A predominant portion of domestic borrowing undertaken by the government has been from the central bank in the form of monetisation of the fiscal deficit – Brecorder