In breach of the law, the State Bank of Pakistan has reportedly extended Pakistani Rupees (PKR) 239 billion credit to Shehbaz Sharif-led government in January-February to address ballooning debt servicing requirements of the domestic commercial banks, Dawn reported.
According to the State Bank of Pakistan Act amended in 2022 on the dictation of the International Monetary Fund (IMF), government borrowing from the central bank is banned, as per the Dawn report.
Section 9C of the law reads, "Prohibition on the Government borrowing--(1) The Bank shall not extend any direct credits to or guarantee any obligations of the Government, or any government-owned entity or any other public entity."
In its quarterly report, an Islamabad-based economic think tank Prime Institute (PI) said the government had borrowed PKR 239 billion from the SBP in January and February of this year as Pakistan's fiscal deficit overshot amid high debt servicing cost of the domestic debt, as per the Dawn report.
The Islamabad-based economic think tank said an excessive government footprint in the economy and public spending continued to affect the economic crisis. The fiscal deficit reached at PKR 1.87 trillion or 2.3 per cent of GDP in July-February where expenditures reached PKR 5 trillion and revenues were PKR 3 trillion, as per the Dawn report.
The stock of SBP credit to the Pakistan government reached PKR 5.597 trillion in February. The stock stood at PKR 4.877 trillion in February 2022, witnessing an increase of PKR 720 billion in a year. The borrowing for budgetary needs resulted in a build-up of the public debt of over PKR 54.9 trillion, as per the Dawn report.
What is credit score? Why is it important?
Bank stocks can slide more; stay away for now: Analysts
HDFC Bank revises credit card rewards points programme for customers
Why is demand for private credit on the rise?
Top card cos to go live with UPI-linked RuPay credit card feature by June
Oliver Dowden named UK's new deputy prime minister, after Raab resigns
Joe Biden 2024 splits Democrats but most would back him: AP-NORC poll
US bank deposits fall $76.2 bn, led by large institutions: Fed data
LinkedIn co-founder defends funding rape accuser suit against Trump
SVB's CEO, CFO step down more than a month after the lender's collapse
According to the report, Pakistan's economic challenges have been caused due to deterioration in political stability in the country and the reluctance of the government to make reforms. It said the government's restrictions on imports reduced the burgeoning current account deficit (CAD) to USD 3.8 billion in July-February from USD 12 billion in 2022.
It also contributed to a halt in large-scale manufacturing (LSM) and the output reduced by 5.56 per cent in eight months in comparison to last year. This slowdown contributed in inflation and prospects of further hikes in the coming months, according to Dawn report.
The decline in large-scale manufacturing (LSM) was caused due to a drop in the borrowing of the private sector by PKR 219 billion in the first two months of the third quarter of FY23 and total borrowing stood at PKR 7.4 trillion.
The borrowing of the private sector under the export processing scheme also witnessed a drop of PKR 7 billion. According to the report, Pakistan's taxation system was regressive with more dependency on indirect taxes as the government had not been successful to broaden the tax base, as per the news report.
According to the report, the governments in Pakistan could not conduct reforms due to political instability and reluctance, according to Dawn report. However, the current political divide has deeply fragmented the people and any consensus on key policy reforms remains elusive.
(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)