KARACHI, Dec 9: Net government sector borrowing in July-November 2004 reached Rs51 billion, exceeding the target of Rs47 billion set for this fiscal year, data released by the State Bank show.
On the other hand, private sector credit borrowing shot up to Rs163 billion within five months to November, indicating that it might touch the full fiscal year target of Rs200bn within the first half, i.e. by end-December 2004.
Whereas the exceeding of full fiscal year target for government borrowing within five months indicates that the government is borrowing more from the banking system either because its non-bank borrowing is falling or its expenses are larger than its incomes.
But a faster-than-targeted borrowing by the private sector suggests that the appetite for bank credit has risen in the growing economy. It also suggests that the private sector is borrowing too fast to avoid an imminent increase in their cost of borrowing in the backdrop of rising interest rates.
Another reason for higher private sector credit off-take is that the textile sector has been borrowing additional funds to upgrade, expand and maximize production capacities ahead of the lifting of textile quotas from January 2005.
The SBP data show that net government sector borrowing totalled Rs51 billion between July 1 and November 27, 2004 not only because of the federal government's borrowing but also because of provincial governments' borrowings.
The data reveal that out of the Rs51 billion borrowing, Rs48 billion were meant for the budgetary support to federal and provincial governments. Of this Rs33 billion went to the federal government and Rs15 billion to provincial government.
The remaining Rs3 billion of the net government sector borrowing was used in commodity operations and other unidentified areas of expenses. Borrowing under commodity operations are made to procure cotton, wheat, rice and fertilizers, etc., by state-run agencies.
Whereas borrowing by the government and the private sector increased in the first five months of this fiscal year, public sector enterprises or PSEs rather retired Rs11.9 billion bank credit during this period. This credit retirement is more than double of the Rs5 billion credit they are supposed to retire during this full fiscal year.
Meanwhile, non-bank financial institutions or NBFIs retired Rs4.6 billion State Bank credit between July-November 2004. Under the credit plan, these institutions are also supposed to retire Rs5 billion.
Credit expansion in other unidentified areas totalled minus Rs69.4 billion. Net domestic assets or the NDA of the banking system grew by Rs128 billion and net foreign assets of NFA expanded by the equivalent of Rs14.5 billion only.
At these levels, NDA and NFA are in line with their full fiscal year targets of Rs250 billion and Rs30 billion respectively. Monetary assets or M2 expanded by Rs143 billion in July-November, suggesting that the full fiscal year target of Rs280 billion could be met, or even if its slips, the slippage would not be too large.
In other words, the M2 growth was at 5.74 per cent in the first five months, against the full fiscal year target of 11.26 per cent, and lower than the 7.9 per cent growth in a year-ago period.
Central bankers say this indicates how seriously the central bank has been containing the growth of monetary assets to check inflation without hurting economic growth.
They say that a slower growth in M2, and particularly in currency in circulation, also suggests that inflation has been on the rise more because of short supply of staple food items and the lack of government control on hoarding and profiteering rather than due to an unusually large monetary expansion.
Currency in circulation grew by Rs90 billion between July-November 2004, down from Rs102 billion in July-November 2003. Data for inflation during this period would be out on Friday or Saturday, but in July-October 2004 increase in CPI inflation averaged at 9.06 per cent.
