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Govt cuts borrowing from State Bank by 85pc

Updated September 15, 2017
First two months see borrowing of Rs115b in 2018, which is only 15pc of the borrowing during the same period of 2016-17. — File
First two months see borrowing of Rs115b in 2018, which is only 15pc of the borrowing during the same period of 2016-17. — File

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