KARACHI, Feb 20: Credit disbursements to private sector significantly dropped during the first seven months of the current fiscal, reflecting a slow industrial and trading activity despite hopes for a higher than seven per cent economic growth.

The tight monetary policy further tightened as the monetary growth shrunk and the expansion of money supply dropped, resulting in the lowering of inflation.

The credit flows towards the private sector totalled Rs228 billion during the July-January period which were much lower than the credit flows recorded during the seven months of last year i.e. Rs282 billion.

The credit flows were lower despite higher credit target than the previous year. The private sector consumed 58 per cent of the total target of Rs390 billion during the said period.

The scenario was different last year when private sector utilised over 85 per cent of the targeted Rs330 billion. However, the actual consumption touched a figure of Rs401 billion by the end of the fiscal year 2006.

Analysts said major sectors, like textile and auto, consumed less than what was expected this year. They said both sectors were the largest consumers of credits, but this year these sectors are under-performed.

They said the export-led textile sector reduced consumption which reflected from its production and below target exports, so far. They said the booming auto sector has started moving downward, resulting in the lower consumption of credit.

“Another major impact was the direct outcome of tight monetary policy which has further been tightened during the last couple of months and the banks adopted cautious approach,” said Abbas Junaid, a banker.

He said credit demand was still high, but the flow was limited. He said despite higher lending rates, the demand was high.

The tight monetary policy produced favorable results, both for the government and the State Bank because of significant decline in main inflation which rose by 6.6 per cent during January as against in the same month last year. This was the lowest increase in any month, so far.

Agriculture sector credit flows also dropped and remained below the target and the State Bank showed concerns urging the banks to gear up their efforts for higher disbursements to the agriculture sector.

Analysts said the credit flows used to drop in the last quarter of each fiscal. If the tradition remains intact, the credit flows to private sector may remain below the target.

“The credit flows have already slowed down. The picture is clear about the below than target credit expansion this year,” said an analyst. He said the peak credit disbursement period is usually the second quarter of fiscal year and after this period, it starts slowing down.

“If the credit flow remains below the target, it will be reflected in the economic growth figures at the end of the fiscal 2006-07,” he said.