The government borrowed extensively from the market (scheduled banks) rather then the SBP, as a matter of policy in the first six months of the current fiscal, the State Bank stated in a report yesterday.
Since the government is busy in exploring options to accumulate liquidity needed to pay off the huge circular debt of over Rs580 billion, the option for borrowing from SBP looks open.
The government’s massive borrowing has created a liquidity crunch in the banking system which is visible from SBP’s injection of Rs526bn in the banking system on Monday.
According to the SBP, the government’s borrowing from scheduled banks rose to Rs647bn at the end of six months of this fiscal year. During the same period of last year, the borrowings from scheduled banks were negative 40bn.
The sheer size of lending by banks to the government has crossed Rs4 trillion including the borrowings during these six months. Such a large accumulation of liquidity from the banking system means there is little left for economic revival purposes at the private sector level.
