October 24, 2001	Wednesday	Shaba'an 6, 1422

KARACHI, Oct 23: Currency in circulation showed a big rise of Rs9 billion in September mainly due to heavy withdrawals from rupee deposits after the September 11 terrorist attacks on New York and Washington.

According to the State Bank statistics, currency in circulation rose to Rs6.5 billion at end-September from minus Rs2.6 billion as on September 1.

“This is an unusual increase in currency in circulation,” said a central banker. “This shows that people were holding more cash in September than in the past month.”

Bankers confirmed that they had witnessed unusual withdrawals after September 11.

“The withdrawals had stopped after a couple of days as people realized that there was little reason to panic,” said treasurer of a state-run bank.

Figures support his statement. The currency in circulation had shot up from minus Rs2.6 billion as on September 1 to Rs6 billion on September 15. The figure increased only marginally to Rs6.5 billion in the next two weeks.

Bankers and currency dealers say in most cases people, who had withdrawn large amounts of money from their bank deposits used the same to buy dollars from the kerb market. Immediately after September 11 episode the dollar had started falling in the kerb market as speculators offloaded their positions in utter panic.

The Rs9 billion rise in currency in circulation in the later part of September also provides a reason for an unusual liquidity crunch that hit the inter-bank market.

Banks had resorted to heavy discounting in the last two weeks of September because of the liquidity crisis, and overnight call rate had been on the rise—often closer to the then SBP discount rate of 12 per cent.

GOVERNMENT BORROWING: Meanwhile, the government sector managed to cut its net bank borrowing from Rs50 billion in the first two months of the current fiscal year to Rs24.5 billion at the end of September.

The borrowing of the government sector includes the borrowing of the federal and provincial governments from the State Bank as well as from commercial banks.

The SBP statistics show that the central government made a net borrowing of Rs 11.7 billion whereas provincial governments borrowed Rs 12.8 billion (net) during July-September this year.

In the first two months of this fiscal year, net borrowing of the central government stood at Rs42.6 billion, and that of the provincial governments at Rs7.5 billion. So, whereas the federal government retired about Rs31 billion within a month, provincial governments borrowed Rs5.3 billion more from banks in September.

The government sector borrowing in the entire fiscal year 2001 -02 is to be kept at minus Rs54 billion to meet an indicative projection set by the IMF. This and several other projections are to be met if Pakistan wants to get a new financial package from the Fund.

The retirement of around Rs31 billion credit by the central government in September coincided with Rs12.2 billion credit retirement by the non-government sector in September alone. That would have created enough liquidity in the inter-bank market had the provincial governments not made Rs5.3 billion additional borrowing and had the currency in circulation not risen by Rs9 billion within one month.