Due to shift in Government‘s borrowing towards Commercial Banks will cause rise in Private Sector borrowing cost; despite the State Bank’s decision to maintain its policy rate at the level of 14%. The monetary experts say that the major problem faced by the economy is lack of liquidity and lending rates will keep on rising until the access of government to the liquidity pool will be cut off. Delay in implementing additional revenue measures like imposition of RGST, Rolling back prices of Oil and Lubrication products, and freezing electricity tariffs could result in rise of deficit level up to 9% of GDP.
Ministry of Finance along with SBP has conveyed this scenario to the GOP and political leadership. The US and IMF authorities are of the same view.
The Governor State Bank of Pakistan Mr. Shahid Kardar has emphasized on the Government to freeze its borrowing at 1,290 billion. SBP’s cumulative report on government borrowing shows a shift of 200 billion rupees from SBP to Commercial banks. If this situation continues then Commercial banks instead of investing in commercial or private sector credits will focus on providing additional liquidity to Government securities. Therefore when private sector credit will be presented for renewal, banks will look for adjustment or higher interest rates.