The tools of monetary management.

The government plans to borrow about Rs1.172 trillion from banks during 2022-23 starting from July 1, budget documents show. The government has estimated that total borrowing during 2021-22 ending in June rose to about Rs873 billion, up from actual bank borrowings of Rs681.3bn in 2020-21.

This means next fiscal year's planned bank borrowing would be 34.2pc more than the estimated borrowings of this fiscal year and 72pc more than the government borrowings a year earlier. The pace of increase in government bank borrowing is mind-boggling. But there are reasons for it - and it entails some implications too.

The size of the government borrowing has been kept large for the simple reason that the government believes it cannot generate enough tax and non-tax revenue to match its expenses.

The government has targeted generating Rs9tr in revenue, including tax revenue of Rs7tr and non-tax revenue of Rs2tr. Against this, total current expenditures for the next fiscal year have been estimated at Rs11.4tr.

The central bank has to juggle money supply instruments to ensure stabilisation under the IMF

Larger planned bank borrowings mean banks would have an opportunity to make more money by investing in government debt securities. The most obvious implication is that the private sector would be crowded out ie banks would not be able to lend to the private sector as generously in the next fiscal year as they did during this year.

This, in turn, means the industrial, agricultural and services sectors - the three main components of our economy - will take a double hit, one from high-interest rates and another from lesser availability of bank loans.

That means economic growth would fall. And that is exactly what the new budget has been premised on. The government has presented the budget with an aim to stabilise the economy on the insistence of the International Monetary Fund (IMF) and stabilising the economy means decelerating its earlier pace of growth.

Pakistan's economy is estimated to have grown 6 per cent in this fiscal year and now the government, on the insistence of the IMF, wants to bring down the growth rate to 5pc.

A slower pace of growth had become inevitable because the high growth of the economy had produced high inflation. Yearly consumer inflation in 11 months of this fiscal year averaged 11.3pc against the full fiscal year target of 9pc.

Actual inflation could turn out to be much higher than this - close to 12pc or even more due to the recent...