The record planned borrowings during the current quarter of FY18 is a reflection of increasing budget deficit and government's inability to find other sources of financing. Fiscal deficit is already estimated to have reached Rs 800 billion by the middle of December, 2017, out of which Rs 389 billion or 1.1 percent of GDP has been contributed by domestic bank borrowings. Net external borrowings inclusive of the receipts of funds from floatation of bonds of dollar 2.5 billion have exceeded by Rs 358 billion or about 1.1 percent of GDP. Fiscal deficit has probably crossed 2.2 percent of GDP if non-bank borrowings are also included in the overall consolidated fiscal deficit. Given the seasonality of the deficit, the overall deficit may cross 5.5 percent of GDP during 2017-18 as against the target of 4.1 percent of GDP. This large deficit together with maturities of the earlier issued debt in the form of PIBs and MTBs has increased the financing requirements of the budget. Since the government does not expect much from external resources and non-bank borrowings, it has to rely on bank borrowings which are expected to be at a record level of Rs 4.925 trillion during January-March, 2018. Such a huge borrowing from the banking system, especially from the State Bank, would of course be inflationary. If the net impact of devaluation and regulatory duties on imports is also added, inflation during the current year could be around 6 percent or substantially higher than the previous two years. Higher borrowings from banks for budgetary support could also shrink space of private sector credit and retard the overall growth rate of the economy. As such, it is high time that efforts should be made to reduce the fiscal deficit to the targeted level. Fortunately, Miftah Ismail, who is the new boss at the Ministry of Finance, seems serious to do well in this area. In the first interaction with the media, he has talked about widening the tax base, simplifying tax structures, and slashing personal tax rates to encourage more and more people to pay their taxes. There is a need to find out whether or not Pakistanis could be allowed to bring their undocumented wealth to the economy by paying a certain amount of tax. We feel that the new team at the Ministry of Finance should also concentrate on cutting the expenditures as tax revenues are already increasing at a reasonable rate and a big jump cannot be expected in the short-term. The government could also increase the flow of domestic non-bank borrowings by raising the rate of return on NSS. Such a mode of financing will be less inflationary and contain the government's borrowings from banks within reasonable limits.
The record planned borrowings during the current quarter of FY18 is a reflection of increasing budget deficit and government's inability to find other sources of financing. Fiscal deficit is already estimated to have reached Rs 800 billion by the middle of December, 2017, out of which Rs 389 billion or 1.1 percent of GDP has been contributed by domestic bank borrowings. Net external borrowings inclusive of the receipts of funds from floatation of bonds of dollar 2.5 billion have exceeded by Rs 358 billion or about 1.1 percent of GDP. Fiscal deficit has probably crossed 2.2 percent of GDP if non-bank borrowings are also included in the overall consolidated fiscal deficit. Given the seasonality of the deficit, the overall deficit may cross 5.5 percent of GDP during 2017-18 as against the target of 4.1 percent of GDP. This large deficit together with maturities of the earlier issued debt in the form of PIBs and MTBs has increased the financing requirements of the budget. Since the government does not expect much from external resources and non-bank borrowings, it has to rely on bank borrowings which are expected to be at a record level of Rs 4.925 trillion during January-March, 2018. Such a huge borrowing from the banking system, especially from the State Bank, would of course be inflationary. If the net impact of devaluation and regulatory duties on imports is also added, inflation during the current year could be around 6 percent or substantially higher than the previous two years. Higher borrowings from banks for budgetary support could also shrink space of private sector credit and retard the overall growth rate of the economy. As such, it is high time that efforts should be made to reduce the fiscal deficit to the targeted level. Fortunately, Miftah Ismail, who is the new boss at the Ministry of Finance, seems serious to do well in this area. In the first interaction with the media, he has talked about widening the tax base, simplifying tax structures, and slashing personal tax rates to encourage more and more people to pay their taxes. There is a need to find out whether or not Pakistanis could be allowed to bring their undocumented wealth to the economy by paying a certain amount of tax. We feel that the new team at the Ministry of Finance should also concentrate on cutting the expenditures as tax revenues are already increasing at a reasonable rate and a big jump cannot be expected in the short-term. The government could also increase the flow of domestic non-bank borrowings by raising the rate of return on NSS. Such a mode of financing will be less inflationary and contain the government's borrowings from banks within reasonable limits.