KARACHI: The government made record borrowings from the State Bank of Pakistan (SBP) during the first 10 months of 2017-18.

The latest SBP data showed that the government’s borrowing reached Rs2 trillion till May 11 – more than twice the amount it had taken in the same period of FY17.

During the outgoing fiscal year — the last of the present government — borrowing from SBP remained high compared to the previous five years.

In FY17, the total government borrowing stood at Rs710 billion versus net retirement of Rs386bn in FY16. The State Bank’s supply of money has a positive side too as the banks have been left free to extend maximum loans to the private sector.

The government has retired over Rs1.1tr of the scheduled bank loans during the period under review, which increased liquidity of the banking industry. Despite that growth, however, the private sector credit off-take could not show much strength as its rise was just close to the credit growth of last fiscal year.

The private sector credit off-take during this period was Rs517bn compared to Rs519bn in the same months of last year. Though almost the same, it was expected that the private sector would play a greater role for growth during this year.

However, it seems that the government’s spending would remain a key driver of the economic growth, particularly its development projects under China Pakistan Economic Corridor. The country had kept Rs1tr developments in the budget for FY18.

The private sector could not show its strength despite low inflation which kept the money cheaper for the investors. For the last four years, the inflation has remained low, helping the private sector boost its effort.

Both the government and SBP expect higher economic growth in FY18 compared to the previous year but the political uncertainty did not help the domestic investors to increase their activities. Uncertainty costs heavily as reflected by the equity market while the outflow of foreign exchange and steep fall in the SBP reserves has put pressure on the economy to grow normally.

Published in Dawn, May 22nd, 2018