KARACHI - The domestic banks are not in a position to meet the annual budgetary borrowings requirement of the federal government, The Nation learnt on Tuesday. In 2007-08 the federal government had borrowed a record amount of 690 billion rupees through the State Bank of Pakistan to fulfil fiscal requirements. The banks are lending more than 400 billion rupees to the private sector in a year (Rs 408 billion in FY08) and from where the banks would arrange another 500 to 600 billion rupees for the budgetary support of the federal government, bankers said. In other words the domestic scheduled banks would have to extend a total of one trillion rupees, one third of the total deposits, in just one year if the banks extended credit to the government for budgetary support, said the banker. The Nation approached the banking sector experts to seek their viewpoint in the light of the State Bank of Pakistan's advice to the federal government to borrow money from the banks and give up massive borrowings from the central bank, a factor that was leading to increase in the rate of inflation and damaging the tight monetary policy. For the last over a year the Governor State Bank of Pakistan Dr Shamshad Akhtar had been asking the federal government to reduce its budgetary borrowings to contain the growing inflation. While announcing the new monetary policy the SBP Governor had said that the board of directors of the central bank could pass a resolution, asking the federal government to give up borrowings from the central bank. Bankers said that the SBP Governor wanted to discourage the unbridled budgetary borrowings of the centre and that's why the central bank was asking the government to go to the banks. If the federal government goes to the domestic banks, the government would not be able to mop up more than 150 to 200 billion rupees in 2008-09 for the budgetary support, a banker said. He said that the massive borrowings of the federal government in last couple of years had led to the failure of the monetary policy of the SBP and given unprecedented boost to the inflation. This factor had also left the SBP with no other choice, but to resort to increase in the discount rate. Two years ago the discount rate was 8 per cent that had been jacked up to 13 per cent last month gradually. In 2007-08 the general inflation had increased to 12 per cent from 7.8 per cent in 2006-07 while food inflation had surged to 17.6 per cent from 10.3 per cent in FY07. In the month of June the general inflation had been reported at 21.5 per cent while food inflation mounted to history's highest mark of 32 per cent. The financial sector analysts are of the opinion that the tight monetary policy would not prove effective as long as the government does not trims its borrowings substantially. Bankers said that the government should minimize its budgetary borrowings and try to bridge the fiscal gaps to reign in the inflation by taking different prudent measures. The idea of SBP to finance huge government inflationary and budget borrowings from the domestic commercial banks is "over ambitious" and beyond practical, financial experts anticipate.       Given the out come for FY08 and economic outlook for FY09, this advice can not be matured; however, the widening fiscal deficit can be financed through pending privatisation proceeds, like issuance of NBP, HBL & KAPCO GDRs to international investors. Ahmed Nabil, Chief Operating Officer, JOVC told The Nation. "Our economy will remain under pressure by over borrowings due to growing aggregate consumption demand," he said, "I do not foresee the sitting economic team of the government which does not comprise of efficient technocrats has ability to materialize this scheme", he added. Earlier, SBP Governor while announcing the monetary policy for the current financial year, (July-December 2008) had directed the government that debt should be borrowed by the commercial banks and raise multiple revenue resources from new borrowing schemes like PIBs, NSS, Moreover the government had also announced launching of 3-months, 6- months and 1-year papers of a new borrowing instrument called Government Commercial Paper has been designed to be launched shortly.