Monetary growth exceeds State Bank target

[Neo]

Monetary growth exceeds State Bank target

Sunday, 20 Jun, 2010

KARACHI: Monetary growth exceeded the State Bank target for the current fiscal year as broad money grew at the rate of 9.93 per cent till June 4, however, it crossed to double-digit by the end June 2010.

The State Bank had announced on several occasions that it would keep the monetary growth within nine per cent as it was maintained during the last fiscal.

Last year, the monetary growth was 6.4 per cent up to June 6, but it took a sharp jump by end of the fiscal year on June 30, to reach 9.56 per cent.

Bankers and analysts see the monetary growth up to 11 per cent by the end of this fiscal year. In terms of amount the broad money grew by Rs509.9 billion in the first 11 months of this fiscal year, which is much higher than Rs303 billion expansions during the corresponding period of last year.

The massive expansion already kept the inflation higher than expectations of the policymakers forcing them to revise their earlier estimates.

Heavy government borrowing from the State Bank and large supply of money caused real inflation. The government’s borrowing for budgetary support surpassed the last year’s figure despite pressure from the IMF to reduce borrowing. However, lower than expected revenue collection forced the government to continue borrowing.

The government borrowed Rs442 billion for budgetary support as against last year’s borrowing of Rs371 billion reflecting the poor economic management of the administration.

The borrowing from State Bank was more critical as it is inflationary in nature but the government borrowed even more than last year. It borrowed Rs170 billion from the central bank compared to Rs165 billion borrowed last year.

Both provinces, Sindh and Punjab, were also in the race to borrow from the State Bank despite getting higher shares from the central pool of revenues. Sindh borrowed Rs11 billion during this period, while Punjab borrowed Rs22 billion from the State Bank. The other two provinces retired their debts.

The federal government also kept borrowing from the commercial banks and set a new record by borrowing Rs225 billion in the first 11 months of this fiscal minimising room for credit growth in the private sector.

Last year, the private sector kept itself away from the bank borrowing, which resulted in poor economic growth of just 1.2 per cent.

The trend changed during the current fiscal and the private sector borrowed Rs82 billion up to June 4, 2010 since July 2009, against a negative borrowing (debt retirement) of Rs4.9 billion made during the same period last year.

The public sector borrowing showed a less flow of banks’ credit as compared to last year but it was still higher than private sector borrowing. The public sector borrowing was Rs84 billion (Rs144 billion last year), while the private sector borrowing was just Rs82 billion.

Analysts said the borrowing trend of the government has hampered its own strategy to curtail inflation, while it looks that the trend will persist since the fiscal deficit is rising on account of less revenue collections and higher defense spending due to war against terrorism.

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