The path that leads to borrowing and more borrowing for repayments remained intact during the first months of the current fiscal year of the new government.The SBPs statistical bulletin for August reported that in fiscal year 2013, a sum of Rs1.5tr was added in the borrowing for budgetary support to make the total as Rs5.5tr, reflecting poor generation of revenue and high spending, the key factors that increased government dependence on borrowing.
The Rs5.5 billion budgetary borrowing was in addition to other borrowings, like National Saving Schemes.
The monster of domestic debt consumed 48 per cent of the entire revenue of the country for payment as interest in the last fiscal year.
The pathetic situation has fixed the new government to revolve around the debt trap and pile up more to the debt mountain.
The new government printed money to get rid of the circular debt of over Rs500 billion, it requires more printing of money to pay back other debts and interests on it.
But the cost of the printing money could be too big to sustain as July inflation shocked economic managers since it rose to 8.3pc and jumped by 2pc alone in July compared to previous month146s inflation of 0.7pc.
Analysts hold food price hike as main reason for July inflation because of Ramazan, but the latest detail of inflation shows the non-food inflation moved more vigorously.
Food inflation in July was 9.2pc (year-on-year basis) compared to 7.9pc in June, but non-food inflation jumped to 7.6pc in July from 4.4pc in June.
It showed the inflation has rounded up all sectors of economy.
Under this situation, printing more money would accelerate inflation and it may increase as rapidly as the country witnessed four years back when average inflation of the year was over 20pc.
The Statistical Bulletin reported that the government borrowed from both commercial banks as well as State Bank despite announcing that it would not borrow from the Central Bank which causes inflation.
In FY-13, Rs960bn were borrowed from scheduled banks and Rs536bn from the State Bank for budgetary support.
The expected fiscal gap which was 8.8pc for the fiscal FY-13, would keep pressure on the government struggling to bring down the fiscal gap at least 6pc of the GDP for FY-14 to reach close to the IMF demand for a loan to be finalised in September.
However, it seems that the interest payment on domestic debt, the looming threat of circular debt, which is the catalyst for energy crisis, and poor economic growth would force the new government to follow the same borrowing path.
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