Govt broke agreement by borrowing Rs 239 billion from State Bank against terms of IMF

Federal government violated law and took a loan of 239 billion rupees from State Bank of Pakistan (SBP). On orders of the IMF, previous government banned borrowing from central bank under an amendment.

Prime Institute report claims that federal government has taken a loan of 239 billion rupees from State Bank in violation of the law.

State Bank has lent Rs 239 billion to coalition government in January-February to meet lending needs of the country’s commercial banks.

Under the State Bank of Pakistan Act, which was amended by the previous regime at the behest of the International Monetary Fund (IMF), government borrowing from the central bank is prohibited.

Section 9C of the Act states: “Prohibition on Government Borrowing, (1) Bank shall not extend credit or guarantee any liability directly to Government, or any Government body or any other public body;

Economic think tank Prime Institute has said in its quarterly report that excessive government influence and public spending in economy fuel economic crisis.

Government borrowed Rs 1.39 billion in the first two months of the third quarter of FY23, of which Rs 239 billion was from the State Bank and Rs 1.15 trillion from commercial banks, the report said.

Think tank’s report said that the fiscal deficit in July-February stood at Rs 1.87 trillion or 2.3 percent of GDP, where expenditure was Rs 5 trillion and revenue was Rs 3 trillion.

Report said the government’s restrictions on imports reduced the widening current account deficit (CAD) to $3.8 billion in July-February from $12 billion last year.

The report said that governments in Pakistan were reluctant to implement reforms due to political instability and a potential decline in political capital. However, current political divisions have deeply divided the public and no consensus on key policy reforms is still missing.

The report argued that Pakistan’s tax system is regressive with over-reliance on indirect taxes as the government has failed to broaden the tax base and people are reluctant to pay excessive tax rates.