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Govt takes a lot in 50 days

state-bankKARACHI: The federal government has been vigorously central bank loans to support its budget, the amount of debt in the last 50 days in the current fiscal year is six times greater than 50 days last year.

The State Bank, said the government borrowed Rs155 billion for budgetary support during the first 50 days, reflecting the revenue flows into the coffers of bad government.

Last year, she borrowed RS21 million dollars for 50 days. Massive debt has been predicted that the floods have destroyed the economy by 25 percent of Pakistan from agriculture to trade and industry.

However, analysts said the government debt does not reflect the real impact of the flood disaster.

“Government borrowing showed a sharp fall in revenue which is much earlier than the full impact of floods,” said Mohammad Imran, an analyst and researcher.

The full impact of the floods is yet to come and that would further shrink revenue inflow and result in a sharp increase in government borrowing.

During the last fiscal year, the government made record borrowing from commercial banks as it was bound to remain within the limit while borrowing from the State Bank under an agreement with the IMF.

Official data issued on Aug 31 showed that last year’s fiscal deficit was 6.3 per cent (or Rs929 billion) of Gross Domestic Product (GDP). It was much higher than 5.2 per cent (or Rs680 billion) deficit of the preceding year.

Fear of heavy economic loss in the wake of more than five weeks of flood, still sinking small towns, villages and crops in Sindh, could further cut government income.

Analysts said full impact of the floods would emerge within next two months which would make it clear how much would be the fiscal deficit and how much government would borrow to continue functioning with the least available liquidity.

One of the major reasons of massive borrowing is poor performance of economy. The government still claims that rate of growth could be around two per cent while many economists, including some government advisors, believe that the rate of economic growth would be zero per cent.

The government borrowing ultimately increased inflation as it prints money. The State Bank has already indicated that inflation would be higher than last year.

Experts said inflation could be as high as 25 per cent due to disaster caused by floods. The inflationary pressure has already been taking shape of a storm, particularly hitting commodities. Prices of commodities of daily use, like sugar, flour, milk, meat, pulses etc., have gone up without resistance imitating strong inflationary pressure gathering momentum with the passage of each day.

So far, the government has not borrowed from commercial banks, instead it made net retirement of Rs44.7 billion compared to Rs54.6 billion borrowed last year during the same period.

The banks are currently short of liquidity due to massive outflow due Ramazan and Eid season while billions of rupees were withdrawn by individuals, groups and organizations for helping the flood-hit people.

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