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KARACHI: Despite higher monetary expansion, private sector participation remained subdued during the first half of the current fiscal year.
The fortnightly report of the State Bank showed that monetary expansion, a sign of monetary penetration in economy, was lower than six months of the previous year, but still at 6.96 per cent. It was 8.97 per cent last year.
The SBP reported that monetary expansion was lower due to sharp reduction or in fact negative growth of net foreign assets of the banking system.
Net foreign assets fell to negative Rs130 billion while these were to the tune of positive Rs126 billion in the corresponding period of last year.Growth of private sector borrowing remained submissive, giving little hope for a better economic growth this year. The government estimates that the economy would achieve a growth rate of four per cent.
Private sector borrowing during this period was limited to Rs193 billion, which bankers, said was not different from previous year. Last year borrowing was Rs163 billion.
'An increase of Rs30 billion in private sector borrowing is a reflection of higher inflation,' said a senior banker.
He said that most concerning point for the government could be the nature of borrowing. 'I believe 95 per cent borrowing has been made only for the working capital,' said the banker.
The nature of borrowing by the private sector was the same as that of last year which did not help economy grow as rate of growth remained around two per cent.
While the business community blames battered economic and political situation for poor private sector participation, the State Banks holds government responsible for the situation.
The State Bank has been issuing reports and frequently asking the government to minimise its reliance on borrowing from commercial banks which leaves little room for the private sector to borrow.The pace of government borrowing is much higher than last year and if it continues to borrow at the same pace, total borrowing could be around Rs1.5 trillion or more at the end of the current fiscal year.
The State Bank reported recently that the government had borrowed Rs840 billion for its budgetary support during the first half of this fiscal year.
Out of this total, borrowing from commercial banks was Rs673 billion; much higher than Rs219 billion it borrowed during the same period of last year.
'It is not simple to blame only one factor for slow private sector participation as banks themselves are reluctant to extend money to the private sector,' said Mohammad Imran, a banking analyst.
However, he said the government was the main factor as it borrows heavily while it also failed to maintain law and order. 'The government is also responsible for encouraging banks to invest in government papers instead of investing in growth of economy,' said Imran.
