Govt borrowings alarm State Bank(
By ERUM ZAIDI
KARACHI - State Bank of Pakistan on Tuesday raised its benchmark interest rates by one per cent, the third such move since January to fight galloping inflation and to stop alarming government borrowing.
The SBP announced Monetary Policy for the first half of FY09, which will be effective from July 30 (today). The Cash Reserves Requirement (CRR) and Statuary Reserves Requirement (SRR) remained unchanged.
The Bank raised the interest rate at which it lends to commercial banks to 13 per cent from 12 per cent. “Our inflation is reaching alarming levels mainly due to borrowing,” said SBP Governor Shamshad Akhtar while announcing the Monetary Policy.
Shamshad said raising the rate to 13 per cent would help in curbing rampant government demand as borrowing had doubled in six months, constituting 80 per cent of the entire fiscal deficit that was equivalent to 8.3 per cent of the GDP.
The Governor lambasted the country’s newly-elected fractured parliamentary coalition government for its unbridled appetite for asking the bank to print more money, further fuelling inflation.
Shamshad said the government had borrowed 204 billion rupees between January and March and 283.9 billion from April to June. In the last two days alone, it borrowed 55 billion rupees, she added. “For the first time the entire board of directors of the central bank will pass a strong resolution to ask the government to stop its borrowing,” Shamshad said.
The continuous internal and external pressures have already caused an erosion of the central bank foreign exchange reserves by 6.5 billion dollars to just 17 weeks of import against 31 weeks six months ago.
Shamshad said the country’s food inflation had already reached an all-time high of 32 per cent while the overall core inflation was also sitting on a 30-year high. “Inflationary pressures are more alarming than ever before,” she said and added “Global crude and commodity prices have induced recessionary trends in global economies. Pakistan is no exception.” “Govt borrowing is totally unsustainable,” Shamshad said. “It had never reached the level it has reached today.”
The central bank has advised the government to retire 21 billion rupees of debt every quarter this fiscal year, she said.
The budget deficit widened to 8.3pc of GDP in the 12 months to June 30, the central bank said. That’s the highest since 1991 when it reached 8.8pc, according to finance ministry website.
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