Monetary growth seen at 13.5pc: NCCC meeting tomorrow
By Parvaiz Ishfaq Rana
KARACHI, July 18: The National Credit Consultative Council (NCCC) is meeting here on Wednesday to discuss credit plan under which monetary expansion is expected to be projected at 13.5 per cent for the current fiscal year. The actual monetary growth during the last fiscal year stood at 16.5 per cent (Rs411.3 billion) against the revised growth target of 14.5 per cent (Rs360 billion).
The monetary expansion projection for 2005-06 has been worked out in accordance with the GDP growth target of 7 per cent and the inflation target of 8 per cent. However, the expansion has been kept marginally below the growth of GDP in view of the occurrence of substantial monetary overhang unfolded in recent years resulting in high consumer price inflation.
According to the working paper prepared by the State Bank of Pakistan (SBP) for the annual meeting of the NCCC, the projected monetary expansion is expected to result primarily from the build-up in Net Development Assets (NDA) of the banking system which is expected to accumulate by Rs365 billion owing to private sector credit expansion.
Similarly, the Net Foreign Assets (NFA) of the banking system is being projected to rise moderately by Rs15bn primarily on account of deceleration in net foreign inflows. The assumptions used in projecting NFA of the banking system was that 90 per cent privatization proceeds of PTCL would be utilized to retire foreign debt during FY06.
However, if these proceeds are not utilized fully during the year the working paper says: “Then the NFA of the banking system would be expansionary and NDA of the banking system would be contractionary to the extent of unused proceeds and therefore the degree of monetary expansion would remain unchanged.” It further says that relevant monetary aggregates could be revised during the mid-year review meeting of the NCCC if privatization proceeds are not used fully to retire external debt.
The government sector is being estimated to absorb bank credit to the extent of Rs120 billion with budgetary borrowings placed at Rs98 billion. Commodity operations of the government are expected to consume Rs20 billion chiefly on account of government’s plans to import sugar and fertilizer.
Credit to non-government sector is estimated at Rs320 billion with private sector absorbing Rs330 billion and Public Sector Enterprises (PSEs) retiring Rs10 billion. The credit allocation of Rs330 billion to private sector is being taken to be sufficient to meet its credit requirements based on growth target of 7 per cent and inflation at 8 per cent for the current fiscal year.
While reviewing credit plan of the outgoing fiscal (FY05) the SBP’s working paper pointed out that the original money growth was envisaged at 11.3 per cent (Rs280 billion) on the back of GDP growth target of 6.6 per cent and inflation target of 5 per cent.
However, in the mid-year review meeting of the NCCC, some of the credit plan targets were revised upward in view of revision of GDP growth and inflation projections necessitated by extraordinary growth of credit to the private sector.
Consequently, monetary growth was projected at 14.5 per cent (Rs360 billion) with NDA of the banking system expanding by Rs330 billion following a historical growth of credit to the private sector.
However, NFA of the banking system was kept unchanged at Rs30 billion. Within NDA, the bank credit to the government was estimated at Rs65 billion (Rs60 billion for budgetary support and Rs5 billion for commodity operations) while bank credit to the private sector was projected to expand by Rs350 billion.
Nevertheless, PSEs were projected to retire bank credit to the tune of Rs15 billion in view of their healthy financial position. Similarly, the SBP’s credit to Non-Bank Financial Institutions (NBFIs) was projected to show a net retirement of Rs5 billion.
However, monetary expansion continued unabated during FY05. It showed a significant growth of 16.5 per cent (Rs411.3 billion) during July-June 2005, compared with the revised credit plan target or 14.5 per cent (Rs360 billion) and the actual growth of 17.2 per cent (Rs357.6 billion) in the corresponding period of last year.
