KARACHI: The government has further reduced its reliance on scheduled banks pushing them to extend loans to the private sector. Its borrowings from the State Bank have increased instead.

The State Bank’s report issued on Tuesday showed the government borrowed just Rs25 billion from these banks during the first seven and half months of this fiscal year.

The fall in banks lending to the government created space for the private sector which borrowed Rs286bn during the period under review exceeding the total borrowing made in FY12. In FY13 it was negative Rs19bn.

The latest SBP report also shows that the government has so far borrowed Rs640bn from the central bank in contrast to last year’s debt retirement of Rs3bn.

It was also reported that the monetary expansion is much lower than the last year indicating that expenses are restricted to meet the fiscal deficit target. Rate of monetary expansion is five per cent till Feb 15 while it was eight per cent in the same period last year.

Experts said the low monetary expansion may help to bring down the inflation but it also indicates low level of economic activity which may pull down economic growth rate.

The government has already slashed the supply of development funds forcing the economic managers to work with less than half the amount allocated in the budget.

IMF believes the rate of economic growth for the current year would remain below 3 per cent while the government sees a growth rate of over 4 per cent.

The banks’ liquidity seems to have produced a very positive impact on large-scale manufacturing sector as the growth in the first six months of 2013-14 was the highest in last seven years.

The LSM registered a growth rate of 6.76 per cent against average 1pc witnessed in the last five years.

Economic activities spread to almost all sectors under the LSM but the food, beverage and tobacco registered the highest growth of 18.2pc.

The government has been borrowing less than its own target through auctions of market treasury bills.

On February 19, the government raised Rs319bn while it had the target of Rs500bn. The maturing amount on the same date was even bigger, Rs561bn.

“The low government borrowing is positive sign for the private sector but how it impacts the overall economic growth is difficult to assess particularly when the development funds are limited and monetary expansion is much lower than last year,” said an analyst.