The government was required to bring down ceiling on net government budgetary borrowing stock from Rs 2,327 billion to Rs 2,070 billion by the end of December 2014 to meet the performance criteria of the IMF for the ongoing review to qualify for the sixth tranche. The government has borrowed Rs 703 billion from the scheduled banks and retired Rs 448 billion to the SBP thereby reducing budgetary borrowing stock from the SBP to below Rs 2 trillion.
The increase in government borrowing from commercial banks has negatively impacted credit to the private sector. The credit to the private sector had declined to Rs 153 billion by 9th January 2015 as compared to Rs 234 billion on the same date a year ago. The government is required to retire the stock of borrowing from the SBP in eight years as per SBP amendment law approved by the National Assembly in 2010. Under the Amendment, government borrowing must be brought to zero at the end of each quarter and the debt of federal government owed to the bank as on the 30th April 2011, must be retired not later than eight years from that date.
The finance minister was required to place a statement before the Parliament in case any of the provisions was not observed. An official on condition of anonymity said the government has been unable to reduce debt stock of the SBP from the level of April 2011. He maintained that debt stock of the SBP stood at Rs 1,200 billion when the legislation was adopted. However, since then it continued to rise and stood at Rs 2,409 on June 2014. It has been reduced to Rs 1,961 billion by taking short-term loans from the private banking sector, which would have implications on the debt servicing cost.
The government's inability to increase the tax base and rationalise expenditure on subsidies, especially for the power sector, due to inability to tackle transmission, distribution and administrative inefficacies account for an increased reliance on commercial bank borrowing to bridge the deficit, sources added.