Bad housekeeping

[Lahore_Real_Estate]

If the government were a family there would be squabbling about how the domestic budget was managed. Official figures released to this newspaper reveal that the governments’ borrowing from the State Bank of Pakistan has reached new heights in the current Financial Year, having risen by almost 20 times in the past five months alone. Currently, borrowing stands at Rs281 billion as opposed to Rs13.598 billion in the same period last year. The government is borrowing at every level – federal, provincial and commodity operation as well as others – and the debt now totals Rs318 billion as on November 19, 2010. The effect of this was to depress credit to the private sector down to a paltry Rs34 billion so far this year. A further consequence of this fiscal policy is that as the government prefers to borrow from itself – the State Bank of Pakistan – rather than the private sector, and as the government is the biggest borrower this has negatively affected growth in the private banking sector.

Ministry of Finance officials (do they not have any say in policy, one wonders?) are of the view that the government’s failure to broaden the tax base and check expenditures at the provincial as well as the federal level has contributed to its dependence on the SBP. It has also failed to press the US hard enough for reimbursement under the Coalition Support Fund, which is in arrears – to us – of $2.4 billion. The governor of the SBP acknowledges this parlous state of affairs and in a statement of the blindingly obvious said that there needed to be serious effort to reverse the current trends in federal government borrowing. Legislation has already been passed by the National Assembly that is designed to limit federal borrowing from the SBP, and it now sits with the Senate for approval. Rumour has it that the federal government is in no hurry to get the SBP Act approved by the Senate, at which we are hardly surprised. This is not a government that likes to find itself constrained in any action by the majesty of the law. But the fact remains that using the housekeeping money to bridge the gap between revenue shortfall and expenditure over-runs is never going to be a long-term solution.