January 04, 2008	Friday	Zilhaj 24, 1428

KARACHI, Jan 3: The government seems to be depending heavily on borrowings to meet its expenditure despite cuts in the annual targets of development budget.

The government has leaned heavily on the State Bank for most of its borrowing needs weakening the tough monetary policy of the central bank and pushing the monetary growth even higher than last year.

Last year monetary growth was over 19 per cent.

This high monetary growth in 2006-07 was the result of high reserve money and the State Bank has pointed out that the reserve money was responsible for higher inflation.

However, in first half year of the current fiscal 2007-08 the reserve money remained much lower than the last year. The reserve money growth during the first half was 10.69 per cent compared to 15.61 per cent during the corresponding period last year. Despite this low reserve money, the monetary growth (M2) was higher than last year. The M2 growth in the first half of the current year was 5.69 per cent compared to 5.42 per cent.

Analysts said the tight monetary policy prevailing for over two years was bound to produce results in the form of lower monetary growth (M2) which is instrumental for increasing inflation.

They said the heavy government borrowing shattered the initial plan to arrest inflation which may reach double digit till the end of the fiscal in June 2008.

The government borrowing is against the advice of the State Bank which has been strongly opposed to the borrowing from the SBP.

The government borrowed Rs229.9 billion for budgetary support against Rs33.6 billion borrowed during the same period last year. The difference is absolutely mismatched.

Out of this total borrowing, the government borrowed Rs186.4 billion from the State Bank, thus putting pressure on the monetary growth. During the same period last year, the borrowing from the State Bank was limited to Rs79 billion.

The financial experts believe that the government’s borrowing would go further higher as the expenditure is higher than the growth of the revenue, though the revenue increased during the last six months.

One of the major reasons is the record high oil prices. The government did not pass on the cost of higher cost of imported petroleum products. The government expects to bear a burden of Rs101 billion if the oil prices are kept at the prevailing rates.

While the government borrowing was reaching to record level, the higher oil prices could lead to higher inflation. The inflation is visible as food prices went beyond expectations of economic planners.

“The double digit inflation looks immanent at the end of current fiscal,” said Abid Saleem, an analyst. The main inflation CPI (Consumer Price Index) is loaded with the very high prices of wheat, rice, milk and other daily use food items.

Abid said the non-food inflation would also be affected with the current trend of monetary growth emerging from the high oil prices, spiraling food prices and huge supply of currency in the market.