KARACHI, Sept 16: Data for the fiscal year 2005-06 issued by the State Bank on Saturday showed that monetary growth was 15.18 per cent, which was much higher than the target.
The data issued after a delay of two-and-a-half months also revealed that private sector borrowing was the real cause for pushing up the monetary growth on the higher side.
Credit to the private sector for the whole fiscal year 2005-06 reached Rs401.7 billion as against the target of Rs330 billion, showing an increase of Rs71.7 billion or 21.7 per cent. However, credit to the private sector was lower than the preceding year (2004-05), which figured at Rs437.8 billion.
The private sector credit growth was out of the expectation of analysts, as they believed that the higher interest rate would impact upon the flow of credit and credit growth would remain within the target.
The growth reflects that the credit demand remained high during the whole year. Analysts believe that consumer-based economic activities would continue during the fiscal year 2006-07 despite higher inflation and costly money borrowing.
The data also showed that the government pumped huge money into public sector companies like Wapda, KESC, etc., during the fiscal year 2005-06, which was negative in 2004-05. The government pumped Rs7.663 billion as compared to a negative Rs12.689 billion in the preceding year. Wapda, KESC, PIA, OGDC, PTC and Pak Steel consumed a total credit of Rs4.755 billion during the year, while others consumed the rest.
The government’s budgetary borrowing remained much below the target of Rs120 billion, as only Rs70.950 billion were borrowed during the year.However, the monetary growth represented with a figure of Rs450.147 billion as compared to Rs479.796 billion in the preceding year. Thus the monetary growth reached 15.18 per cent as against the target of 12.81 per cent, but it was lower than the preceding year growth of 19.30 per cent. This increase was 18.5 per cent higher than the target.
Analysts said the high monetary growth was the real cause of higher inflation that had started gaining weight in the current fiscal 2006-07. The two-month figures of inflation were termed alarming, especially the food-led inflation that reached double digit.
“The whole inflation is food-led in the first two months and it may create uncertainty in the country,” said an analyst. He was of the view that the government failed to check price escalation despite its promises in the budget that the price inspection would keep a tight grip on the ‘unwanted’ price hike.
“Clearly the government has been losing grip on its machinery to implement the decisions and avail desirable results,” he said, adding: “Disappointment on mass level could lead to political uncertainty, which would be extremely injurious to the economic growth we have achieved during the political stability prevailing in the country for the last seven years.”
The government had promised to check prices by a two-way strategy. It decided to supply essential items through the network of utility stores and appointed inspectors to check the price hike. Both the decisions look failed, as utility stores are short of the items in demand and the price inspectors were not on the scene.
“The State Bank is also responsible for controlling the inflation but it also looks in trouble because inflation is going higher despite tight monetary policy,” commented a banker.
