KARACHI, July 13: A national credit plan of Rs280 billion is being prepared for the current fiscal year to achieve budgetary growth target of 6.6 per cent and keep inflation within five per cent.
The plan will be discussed on Saturday at the National Credit Consultative Council (NCCC) meeting with State Bank of Pakistan Governor Dr Ishrat Hussain in the chair. The NCCC is the supreme banking credit body of the country.
Its members include top bureaucrats of federal and provincial governments, presidents of nationalised, privatized and private banks and leaders of trade bodies and farmers' organizations.
The plan intends to maintain what is described as "State Bank's growth-oriented monetary policy" during the current fiscal year too. A sum of Rs200 billion has been indicated for the private sector.
The private sector consumed Rs301 billion in the outgoing fiscal year 2003-04 as against original provision of Rs85 billion only in the initial credit plan. "In case the demand for credit is higher than the estimated, it will be met by all means as has been done in the past," the State Bank announces in the credit plan for 2004-05.
The State Bank took full advantage of the historically low interest rate scenario in 2003-04 and was more than generous towards the private sector. The central bank apparently looks forward to the coming months with same confidence but with caution also.
"The growth rate of money supply is slightly less than the nominal GDP growth keeping in view the monetary policy overhang of the last two years and rising inflationary trend," the credit plan states.
The monetary expansion of 11.4 per cent projected during 2004-05 stems from the net domestic asset of Rs250 billion. Only a sum of Rs30 billion is anticipated to be the net foreign asset during the current fiscal year.
The credit plan shows Rs47 billion for the government. The budgetary support will require an indicated Rs45 billion, while Rs5 billion is for commodity operations. There will be a net retirement of Rs3 billion from zakat.
The non-government sector will take up Rs190 billion. The private sector gets Rs200 billion while public sector enterprises and financial institutions will retire Rs5 billion each.
The plan indicates net foreign asset accumulation at Rs30 billion which is about $500 million during the current fiscal year. The credit plan for 2003-04 initially stipulated a monetary growth of 11 per cent or Rs230 billion to achieve 5.3 budgetary growth rate and keep inflation within four per cent.
The planners initially targeted net domestic asset (NDA) to grow by Rs100 billion, while net foreign asset (NFA) is expected to accumulate by Rs130 billion. The monetary expansion during July 2003 to June 26, 2004 amounted to Rs366 billion or 17.6 per cent.
The higher than targeted monetary expansion was the result of continued easy monetary policy stance by the SBP that it claims "to reinforce the momentum of economic recovery and growth with moderate inflation."
Though the reserve money data up to June 26, 2004 shows an increase of 23.6 per cent (Rs158 billion) compared with an expansion of 24.6 per cent (Rs143.7 billion) during the same period last year, the preliminary estimates of end-June 2004 show that reserve money has increased by about 15 per cent.
The unprecedented private sector credit exceeding Rs300 billion during 2003-04 is said to be the main contributing factor to push up the monetary expansion to 17.6 per cent.
The government borrowing too reached Rs62 billion against an original indication of Rs10.6 billion. While the NDA build-up was phenomenal, the NFA build-up was Rs39.8 billion mainly because of shortfall in external resources.
Manufacturing consumed Rs133 billion out of Rs301 billion for the private sector. Textiles was the main beneficiary that consumed Rs60.8 billion, while Rs46.1 billion was taken up by cotton related operations.
Credit for construction industry went up by 56.6 per cent to Rs2.6 billion. The cement sector borrowed Rs4.8 billion, while communications, storage and transportation demanded Rs7.8 billion. Agriculture showed a phenomenal and unprecedented growth in gross disbursement, reaching Rs73.6 billion for the first time.