KARACHI - The budgetary borrowings of the federal government have shot up to 339.41 billion rupees in the current financial year. From July-Dec 13, 2008, the budgetary borrowings of the federal government reflect a major increase of 126.77 billion rupees as against such borrowings from the same period of last fiscal. In last financial year the budgetary borrowings of the centre amounted to 218.64 billion rupees during the said period. Instead of maintaining a strict fiscal and monetary stance, the massive surge in the government borrowings was witnessed during the said period that showed fiscal management weaknesses. The federal government is supposed to achieve targeted reduction in the fiscal deficit in 2008-9 to eliminate SBP financing of the budget however, SBP budgetary and inflationary financing of the government continued in July-December 2008. Meanwhile, the monetary aggregates of the SBP for July-December 2008 showed that the private sector credit disbursement from the scheduled banks has slumped by 38 billion rupees from July to December, 2008. The domestic banks disbursed Rs133 billion from July 1 to December 13, 2008 against Rs171 billion disbursed during the same period of last fiscal, showing that the private sector credit demand has decelerated this time. The unexpected sluggish growth in credit demand during July-December of current fiscal was recorded because of monetary tightening and growing participation of mutual funds and other non-bank financial institutions in corporate debt papers to meet credit demand during the specific period of FY09. The federal government is committed to limit financing from the SBP to zero on a cumulative basis during October 1, 2008-June 30, 2009, and the fiscal deficit is planned to be fully financed by available external disbursements (which have already been committed), the acceleration of the privatisation process, the issuance of treasury bills, and other domestic financing instruments, including Pakistan Investment Bonds, Ijara Sukuk, and National Savings Scheme (NSS) instruments. Worth noting is that the government has already implemented a number of measures consistent with the fiscal adjustment since the begging of FY09. Specifically, petroleum prices have been adjusted three times since June 2008, which has led to the elimination of petroleum subsidies. At the same time, electricity tariffs were adjusted by an average of 18 percent from September 5, 2008. Similarly, steps have been taken to slow the pace of development spending, the research and development subsidy for the textile industry has been fully eliminated, wheat procurement prices have been raised to international levels, and the general sales tax (GST) rate has been raised by one percentage point to 16 percent. According to SBP, the fiscal deficit (excluding grants) has been estimated to be around 4.3-4.8 percent of GDP in FY09, from 7.4 percent of FY08, mainly because of a substantial cut in subsidies of oil and food. According to the macroeconomic stabilisation programme, the fiscal deficit (excluding grants) is targeted to decline to Rs562 billion in 2008-09, from 7.4 per cent in 2007-08. This fiscal effort is necessary to help reduce the external current account deficit, move toward a sustainable fiscal position, and eliminate SBP financing of the government. To achieve the 2008-09-deficit target, the government will increase tax revenue by 0.6 percentage points of GDP and reduce non-interest current expenditure by about 11/2 percentage points of GDP, mainly through the 45 elimination of oil subsidies by December 2008 and electricity subsidies by June 2009. At the same time, domestically-financed development spending will be reduced by about 1 percentage point of GDP through better project prioritisation. According to the monetary survey from July to December 13, 2008, Net Foreign Assets of banking system showed negative growth whereby NFA amounted to Rs -337 billion compared to Rs -121 billion. The contraction in NFA of banking system has been the result of widening trade deficit and lower net receipts of external financing. On the other hand, Net Domestic Assets stood at Rs388 billion during the period under review from Rs328 billion in FY08 witnessing sharp acceleration in NDA growth of the banking system.