December 16, 2006	Saturday	Ziqa'ad 24, 1427

KARACHI, Dec 15: Credit to private sector during the last five months remained half of what it was during the corresponding period of previous year, but the monetary growth was significantly higher mainly on account of the government’s speedy borrowing.

Despite frequent advices by the State Bank, the government kept borrowing from the banking sector which caused the growth of monetary assets more than last year.

The high government borrowing would hamper the State Bank’s effort to bring down the inflation to 6.5 per cent from above eight per cent by the end of this fiscal year.

Data released by the SBP on Friday showed that the credit supply to private sector during July-December 2006-07 was 6.65 per cent against 12.21 per cent during the same period last year.

The monetary assets showed a growth of 4.28 per cent during the first five months of the current fiscal compared to 3.42 per cent over last year corresponding period.

Analysts said what pushed the monetary growth high was the higher currency growth which was just below than last year. During the said period currency grew by 10.58 per cent compared to 12.12 per cent during the corresponding period of last year.

The government borrowed Rs98.649 billion for budgetary support during the same period against the full year target of Rs120 billion.

Analyst said the government borrowing was inflationary and making SBP efforts ineffective to keep tight grip over the monetary growth and inflation.

The tight monetary policy has almost halved the credit off-take to private sector which could be resulted into slow economic growth but it would serve the purpose to curtail the inflation.

“High cost infrastructure projects require huge inflows of money which is being pumped through borrowing from the banking system,” said Imran, an economic analyst.

He said the government was also spending for earthquake construction but it failed to find out any alternate source for borrowing.

The central bank has been advising the government to issue bonds to meet its liquidity requirement while the World Bank and IMF have been extremely critical about the slow growth of revenue generation.

“The revenue growth does not match with the economic growth while the base of taxpayers is also out of economic growth pattern,” said Asif Ali, adding that share of indirect taxes has been increasing for five years.

The analyst said if the borrowing pattern of the government continued inflation would not show any sign of easing and the output of manufacturing sector may decline due to costly credits.