KARACHI: The government’s massive borrowing in the first 11 months of 2016-17 led to an increase of 101 per cent in the net domestic assets (NDA) of the banking system.

The State Bank of Pakistan (SBP) reported on Monday NDA rose to Rs1,628 billion from Rs809bn a year ago.

NDA reflect net claims on the government by the central bank and commercial banks plus loans to public entities and private sector.

The contribution of the SBP and commercial banks to NDA was Rs796bn and Rs832bn, respectively. Government borrowing from the central bank rose to Rs1,075bn, reflecting the shortage of revenue and increased spending.

Independent economists find it hard to believe that the fiscal deficit is 4.2pc of GDP for 2016-17. Official data shows that during the first 11 months of 2016-17, the government borrowed 40pc more than its borrowing in the preceding fiscal year.

Budgetary borrowing has reached Rs985bn so far. By the end of June, it can cross Rs1,100bn. This would be higher than the budgetary borrowing recorded in either 2015-16 or 2014-15.

The massive rise in NDA increased monetary expansion. It rose to 9.33pc compared to 7.89pc a year ago. Monetary expansion helps create overall economic growth, but it also results in inflation. Inflation may rise because the government is leading this expansion.

However, the private sector has also substantially increased its borrowing. Commercial banks’ advances to the private sector have risen this year. Credit off-take by the private sector crossed the half-a-trillion figure after at least five years. Compared to the preceding fiscal year, credit to the private sector has doubled to Rs525bn during the 11 months.

It indicates economic growth as increased credit will generate more economic activities.

However, the government is leading the monetary expansion, which means most of these funds will be used for unproductive purposes.

Overall economic growth in the outgoing fiscal year was led by agriculture growth as manufacturing and exports failed to show improvement.

Published in Dawn, June 13th, 2017