EFP endorses IMF’s narrative on govt borrowing

KARACHI: The Employers’ Federation of Pakistan (EFP) endorses the International Monetary Fund’s (IMF) narrative that the government should not borrow from the central bank, a statement said on Tuesday.

EFP president Ismail Suttar said that the maneuvers of borrowing from the central bank will lead to a further amplification in the already peaked inflation rates, adding that the employers’ federation gives credence to the rejection of the government’s request to keep a door open for borrowing from the central bank.

The EFP president said a central bank, in real terms, is meant to control money supply in the economy, being the only lender of last resort, particularly to the commercial banks.

When an entity as large as a government resorts to borrowing from the central bank, the bank itself has no option but to print more money, which fuels further inflation and negatively impacts the economy, he said.

“In the FY2020 there was a considerable decrease in fresh government borrowing from the reserve banking system and; moreover, the government made pragmatic efforts to retire the existing debt.”

“The financial managers were able to settle the existing debt of Rs1.164.7 trillion to [the] SBP this year,” he said, adding that this change in the government policy enabled the IMF restructure their conditions related to the central bank borrowing.

On that account, the scheduled banks share in the government’s domestic debt increased. The only stumbling block of this system is that the heavy government reliance on commercial banks for financing the budgetary support limits lending to the private sector.

Suttar also said that EFP adheres to the belief that the diversion of funds to government usually restricts the private sector borrowing, which is a negative factor.

It is favourable for the economy, in general, about the government’s action to forgo central bank borrowing but it is imperative that the financial administrative system consider establishing a reformed structure for a more stable economy.

He said this could entail fixing a certain percentage of funds for the business community so that a healthy investment environment could be nurtured and further developed.

Suttar said that the consideration and analysis of important entities, in this regard, would be vital in the formation of sustainable systems that would further build the trust of business communities, leading to industrial and business growth and development.