KARACHI: The government drastically reduced borrowing from the central bank in the first two months of 2017-18, causing a slowdown in the contraction of broad money.

The government borrowed Rs115 billion from the State Bank of Pakistan (SBP) in July-August, which was just 15 per cent of its borrowing during the same period of 2016-17.

In the last fiscal year, the government relied heavily on the central bank by borrowing Rs776bn in July-August and kept retiring the debt of commercial banks.

The economy witnessed a monetary expansion of 13.69pc or Rs1,756bn in 2016-17, which helped it achieve over 5pc growth rate.

During the first two months of the current fiscal year, monetary expansion was negative 0.96pc compared to negative 1.6pc a year ago.

After aggressive borrowing from the central bank and moderate borrowing from commercial banks in 2016-17, economists expected the government to keep pumping money into the economy for higher growth.

The government borrowed Rs361bn from scheduled banks in 2016-17. But the trend seems to have reversed this year. The government already borrowed Rs205bn from scheduled banks in July-August against a net debt retirement of Rs470bn during the corresponding period a year ago.

A major chunk of borrowing from commercial banks was in the second half of 2016-17. But low borrowing from commercial banks in July-August has helped the private sector benefit from increased liquidity.

Published in Dawn, September 15th, 2017