April 19, 2007	Thursday	Rabi-us-Sani 01, 1428

KARACHI, April 18: The private sector which has been a real engine for pulling economic wheals during the last three years slowed down absorbing the liquidity needed to keep on moving with high economic growth.

The flow of credit to private sector fell by 24 per cent during more than nine months of the current fiscal and is far behind the target set by the government.

The government has set a lower target to maintain a slow credit expansion fearing inflation to rise above the red line.

Bankers said the backbone of the economy, the textile has narrowed down their absorbing capacity as they slowed borrowing for working capital as well as fixed investment.

The latest officials figures of advances issued on Wednesday showed that that advances to private sector were far behind the target.

The private sector borrowed Rs262.8 billion between July and April 7 against the whole year target of Rs390 billion.

“I am sure that the private sector will not reach the target of bank borrowing set for the year 2006-07,” said a banker, adding it would be the first time after three years the credit growth would start slipping behind the target.

Textile sector experts said that high interest rate was one of the major factors for slow borrowing by the textile people as the sector was loosing ground in the world market, finding it hard to compete with China, India and Bangladesh.

The State Bank of Pakistan reported that during July-February 07, the textile sector credit flow for working capital grew by 15.7 per cent compared to 23.7 per cent during the corresponding period last year. However, the fixed investment growth in the textile sector was negative 10.5 per cent against a positive growth of 3.3 per cent last year.

Overall credit flow to the textile sector remained less than half than what it was during the same period. The credit flow was just 8.1 per cent during the said period, compared to 17.2 per cent of the last year.

The second quarterly report of the State Bank expressed satisfaction over the monetary growth aimed to maintain tight monetary policy with high interest rate. The monetary policy worked as far as credit expansion to private sector was concerned, but it failed to check the sudden increase in the monetary growth.

The monetary growth has reached close to the yearly target of 13.46 per cent by reaching 11.29 per cent during nine months. During the same period last year, the monetary growth was 10.74 per cent.

However, last year the private sector borrowing was more than Rs401 billion while the annual target was Rs330 billion.

“During 2004-05 and 4005-06, interest rates were much lower than the current rates and it played a key role for slowing down credit growth to private sector,” said an analyst.

“The impact of slow credit growth to private sector will be felt next year and this will result in slow economic growth,” he said.

The analyst said the current year economic growth which is expected to even cross the target of seven per cent, would be the result of very favorable agricultural growth and much lower oil prices compared to last year.