KARACHI, Nov 19: In the first four months of this fiscal year, the federal and provincial governments made a net borrowing of Rs 36.1 billion from the banking system to fill in the budgetary gap in income and expenses.

Of this the federal government borrowed about Rs 23.8 billion whereas the provincial governments borrowed a little more than Rs 12.3 billion.

Bankers said the federal government borrowed Rs 37.2 billion from commercial banks but at the same time it made a net credit retirement of Rs 13.4 billion in the State Bank account bringing its net credit from the banking system to Rs 23.8 billion. In a sharp contrast provincial governments borrowed Rs 15.9 billion from the State Bank and made a net credit retirement of Rs 3.6 billion in the accounts of commercial banks.

According to the 2001-2002 credit plan, the government sector borrowing for budgetary support is projected at minus Rs 54 billion. In other words the federal and provincial governments put together are supposed to make a net retirement of Rs 54 billion worth of credit in fiscal 2001-02.

This projection has been made in consultation with the IMF and is part of the indicative targets the meeting of which would keep Pakistan on track an upcoming three-year stabilization programme of the Fund.

Bankers say what facilitated the government sector make heavy borrowing from the banking system during July-October this year is that the private sector credit demand remained sluggish during this period.

Bankers say the private sector made a net credit retirement of Rs 14.7 billion in the first four months of the current fiscal year. But this does not mean that it borrowed nothing from banks during this period. Senior bankers say with the start of cotton and rice financing in September the private sector credit offtake has risen modestly. But fast retirement of the loans taken earlier continues to offset fresh borrowing.

The credit plan drawn up in consultation with the IMF projects Rs 98.1 billion bank credit for the private sector during this fiscal year. But senior bankers say since this and several other projections of the annual credit plan were made before September 11 chances are that they would not be met.

The September 11 terrorist attacks on New York and Washington and retaliatory US bombing on Afghanistan threaten to slow down an already sluggish Pakistan economy: exports are going to fall; investments not going to come in; revenues may fall sharply and privatization may not take off. All this is bound to decelerate production activity and contract the private sector credit flows.

If the private sector credit flow remains sluggish in the months to come and the industrial growth falls below the expected level, the government sector will have to raise its own spending for economic growth.