KARACHI: On the first day of new fiscal year, the State Bank reported that monetary expansion was much lower than last year; borrowing for budgetary support was sharply low while private sector borrowing picked up pace.

According to a report issued by the State Bank on Tuesday, monetary expansion was 9.51 per cent compared to 15.9pc in FY-13. The report contains data up to June 20.

The details reveal that the government borrowing for budgetary support was just 20pc of what was borrowed by the government in the last fiscal year. Till June 20, government borrowing for budgetary support was Rs268bn while during the same period last year, borrowing was Rs1,294bn. This was record low borrowing.

However, the government borrowing from State Bank was Rs335bn compared to Rs403bn in the same period last year.

The situation about borrowing from commercial banks was not different. Last year, the government was almost the sole borrower from scheduled banks. The SBP reported that the government borrowed just Rs178bn from scheduled banks while it had borrowed Rs927bn in the same span of time last year.

The governments traditionally rely on State Bank and scheduled banks for borrowing to support their budgetary gaps. The fiscal gap has been controlled and is expected to remain below 6pc this year. The target for the year was 6.3pc.

The impact of low borrowing from scheduled banks was reflected in the private sector borrowing from the banking sector as the sector borrowed even higher than FY-12 while borrowing in FY-13 was negative.

Private sector credit off-take was Rs294bn till June 2014 while in the same period last year it was negative Rs1.8bn.

Though private sector borrowing could not bring any significant change in the economic growth rate, continuation of private sector borrowing could help the economy achieve a better growth, like 5pc and above.

Analysts said the government succeeded to reduce the borrowing from SBP and scheduled banks as it borrowed money by selling bonds.

The government sold Pakistan Investment Bonds of over Rs1.7 trillion since January this year showing the flow of liquidity and its direction.

The State Bank reported that the net foreign assets of the banking system rose to Rs332bn in FY-14 while last year it was negative Rs253bn.

Published in Dawn, July 2nd, 2014