Cute Desire
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 |  Subject: Govt to borrow more for flood spending  Wed Aug 04, 2010 10:03 am | |
|  KARACHI: The government borrowing from the State Bank and
commercial banks is expected to mount in the wake of meeting heavy
flood-related expenditures which could further heat up fiscal and
inflationary pressures, said analysts.
The worst flood
after having played havoc in Khyber Pakhtunkhwa and Punjab killing over
1,600 people and rendering millions homeless and jobless is now
approaching Sindh.
They said the government would have to borrow
even more than last year from the State Bank and commercial banks to
meet the rising expenditures in the wake of disastrous impact of the
flood.
“Fiscal pressures are expected to mount further amid
recent floods requiring more expenditure for rebuilding the calamity-hit
areas with tax exemptions being announced for them,” said Khurram
Shahzad, Head of Research at InvestCap Research.
Khyber
Pakhtunkhwa has already been incurring heavy expenditures in the form of
war on terrorism. Hundreds of billions have already been drained in
this war while more will go in the same. The war has minimised the
province’s participation in the national economy while millions lost
their jobs as both production and agriculture came at stake with war and
flood.
During the last fiscal year, the government borrowed
heavily to meet its expenses and the State Bank believes that the fiscal
deficit may go up to 6 per cent of GDP. The large deficit forced the
government for huge borrowing.
“The full impact of flood
requires hundreds of billions of rupees to mitigate the consequences
facing millions of Pakistanis,” said Mohammad Imran, Head of Research at
Arif Habib Investment.
However, he said the full impact has yet
not calculated as the flood is still there and coming toward Sindh. He
said upper Punjab lost heavily due to flood while impact in Sindh was
yet to come as flood was close to the province.
The State Bank
in its monetary policy did not accept the government’s fiscal targets
and increased the interest rate in the wake of unachievable fiscal
deficit, revenue collection and inflation.
“If the fiscal
deficit goes more than last years’ expected 6 per cent it would be
disastrous for the country as it would face another spell of very high
inflation which could force the State Bank for further tightening of
monetary policy,” said Imran.
Analysts said the loss of agriculture and businesses in Khyber Pakhtunkhwa would also affect other provinces.
They
said the government had not come out with any plan to rehabilitate the
displaced people. The spending requirement would be clearer once the
full impact will be calculated and the government finalises the plan for
the reconstruction and rehabilitation in the province.
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