KARACHI, March 18: The government’s dependence on borrowing from the banking system has further escalated in the last 15 days, while lending to the private sector has almost touched the last year’s record high figure.

All factors that kept the monetary growth very high during the last two years have gathered again to lead the growth rate to the same level.

The rampant increase in borrowing by the government and the private sector has further pushed up the monetary growth by 1.44 per cent to 9.47 per cent from February 19 to March 4, 2005. This increase in the monetary growth took place in just 14 days, which means that monthly monetary growth could reach 2.5 to three per cent. This high growth will not allow the SBP and the government to reduce inflationary pressure.

The inflation may not remain in single digit if the monetary expansion moves with the same speed. The government has set 12.08 per cent monetary growth for the current year. For the last couple of years the monetary growth had been above 19 per cent.

Latest data issued by the State Bank on Saturday showed that the private sector did not stop borrowing despite higher lending rates by banks, while the government’s borrowing had crossed all the targets set for the whole financial year.

The net government sector borrowing reached Rs123 billion for the first time during the current fiscal while the target was Rs120 billion. However, borrowings for the budgetary support have gone far away from the target of Rs98 billion for whole year. The budgetary borrowing till March 4 reached Rs155.5 billion as against Rs17 billion last year in the same span of time.

Credit to the private sector has almost touched the last year’s figure. The private sector borrowed Rs323.8 billion during the last eight months as compared to Rs327.6 billion during the corresponding period last year.

The comparative figures show that the high growth in credit to the private sector could not be controlled despite higher lending rates and State Bank’s tight monetary policy.

Banks have been earning record profits for the last couple of years mainly on account of interest on advances. This trend has already created an imbalance in advance to deposit ratio. The banks’ advances have already reached 77 per cent of deposits. The attraction of higher profits hurt the SBP’s tight monetary policy, as the private sector lending is the key factor in the monetary expansion.

Analysts believe that the SBP may use interest rate as tool to control the unwanted expansion in the private sector credit. Higher interest may curtail high growth in lending to the private sector. However, they also believe that a further hike in the interest rate could annoy the government which wants to see higher supply of money into the economy for higher economic growth.

The government’s budgetary borrowing stands over 59 per cent from the target of Rs98 billion for the whole year. Surprisingly, during the same period last year the budgetary borrowing was just Rs17 billion.