The State Bank of Pakistan (SBP) has issued its annual report for the fiscal year 2003-04 (FY 04) a few weeks back. As macro-economic indicators of the economy are flashed by the government in the Economic Survey and the budget documents much earlier than the release of SBP annual report , public is aware thereof and subsequent to the release of the SBP report for FY 04, many articles have appeared in the press examining the macro-economic aspect of the economy e.g GDP growth, investment, growth in the industrial production and the real nature of such a growth etc.
However, micro (including arithmetical) aspect of the economy has not received attention of the writers so far. The purpose of this write-up is to dwell upon that aspect.
FISCAL DEFICIT: Let us begin with the fiscal deficit which has been put @ 3.9 per cent of the Gross Domestic Product (GDP). The same figure appeared in the Monetary Policy Statement (MPS) issued by the SBP on the 21st July, 2004.
However, SBP Governor had put it @ 3.3 per cent while giving briefing to the Senate Committee on Finance on the 6th August,2004. The figure of 3.9 per cent nevertheless stands restored in the SBP annual report for FY 04 (AR FY 04). How this figure has been worked out by the Ministry of Finance is not understood. In this connection, Table I is appended.
It will be seen from the Table I that there is a gap of Rs 173.9 billion in government income and expenditure. Table 2.23 page 39 of AR FY 04 puts the GDP (market price) at Rs 5458 billion. Table 1.5 page 13 of the Economic Survey issued in June,2004 also contains the same figure.
| Table I- Government income & expenditure FY 2003-04 | ||||
| Head | As per Table 4.1- SBP report for FY-04 |
As per GDP(mp) Rs.5458 billion |
||
| Amount (Rs. billion) |
% of GDP | % of GDP | ||
| A. Revenue | 798.8 | 18.00 | 14.64 | |
| B. Expenditure | 972.7 | 21.9 | 17.82 | |
| C. Fiscal deficit (A - B) | 173.9 | 3.9 | 33.18 | |
Based on that figure of the GDP, the percentage to GDP of government revenue, expenditure and the fiscal deficit works out to 14.64,17.82 and 3.18 respectively which figures are on much lower side than what has been put in Table 4.1 of AR FY 04.
CREDIT EXPANSION: The figure of credit expansion in the private sector during July 26,2003 -June 2004- was put at Rs 301.2 billion in the MPS which has been raised to Rs 325.2 billion in AR FY 04.
The sectoral break-up of the credit expansion contained in Table 5.2 page 84 of the report puts the figure of overall credit expansion at Rs 234.8 billion and in addition to that an expansion of Rs 75.6 billion was in the consumer financing; thus expansion aggregates Rs 310.4 billion. To which sector the balance amounting to Rs 14.8 billion has gone remains unexplained.
Table 5.2 ibid puts the flow of credit to the agricultural sector at Rs 17.5 billion. Table 2.5 page 18 of the report, however, puts the figure at Rs 6.1 billion only. The details are summarized in Table II appended.
| Table II Agricultural loans- July,2003 - June,2004 [in billion rupees] | ||||
| Ban Banks | Disbursement | Recovery | Net expansion | |
| Zarai Taraqqiati Bank | 29.9 | 35.6 | (-) 5.7 | |
| Commetcial Bank | 33.2 | 24.4 | (+) 8.8 | |
| Domestic Private Bank (DPBs) | 2.7 | 1.5 | (+) 1.2 | |
| Punjab Privincial Co-op. Bank | 7.7 | 5.9 | (+) 1.8 | |
| Total | 73.5 | 67.4 | 6.1 | |
| Source: SBP annual report for 2003-04- Table [Table 2.5] | ||||
The figures given in Table 2.5 AR FY 04 are corroborated by the data contained in Table 2.7 (page 12- statistical annexure portion of the report) which data has been supplied by the Agricultural Credit Department of the SBP.
It is not understood from where the data furnished in Table 5.2 page 84 of the report has been gathered. It appears that different chapters of the report are being compiled by different officials, the banks are furnishing different sets of the figures to different departments of SBP and there is no co-ordination among the compilers of the report.
The credit in the agriculture sector is provided by a small number of the banks and if there is proper co-ordination among various report compiling officials, such huge gap in the two sets of figures would not arise as the matter could be taken up with the banks supplying different figures to the different departments of the SBP.
However, taking the credit expansion of Rs 6.1 billion in the agriculture sector during FY 04, it can safely be concluded that there has been no expansion during January-June,2004 as the figure of credit expansion during July-December,2003 was Rs 6.691 billion which was reduced to Rs 3.392 billion at the end of September,2003 as reported in the SBP quarterly reports for the relevant period. Compare the paltry expansion of Rs 6 billion in the agriculture sector with consumer finance sector expansion of Rs 75.6 billion.
SBP has made efforts in the AR FY 04 to change the basis of some items of the data in such a manner that it becomes incomparable with the data given in the earlier reports. The purpose obviously seems to preclude the analysts from arriving at a definite conclusion.
For instance, the figures of the outstanding advances of the scheduled banks have substantially been changed on the plea that the figures exclude inter-bank advances. The details are contained in Table III appended.
It will be seen from Table III that outstanding amounts of advances for the same year have been shown to have increased by substantial margin of Rs 77-99 billion in the AR FY 04 even though the exclusion of the inter-bank advances must have reduced the amount.
| Table III- Outstanding of scheduled banks as of the date in column 1- [Figures in billion rupees] |
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| Date | As per AR for FY 04 | As per AR for FY 03 | Difference [2-3] | |
| 1 | 2 | 3 | 4 | |
| 30-06-2001 | 941.994 | 864.261 | 77.733 | |
| 30-06-2002 | 970.112 | 885.007 | 85.105 | |
| 30-06-2003 | 1069.259 | 969.871 | 99.388 | |
| 30-06-2004 | 1357.946 | - | - | |
| AR: SBP annual report. FY 03= Fiscal year 2002-03. FY 04= Fiscal year 2003-04 | ||||
Further, the inter-bank advances, classified as "advances to banks" in the weekly press communiqués issued by the SBP had never been so large. The figure generally has been a small fraction of a billion. What really necessitated the SBP to change the basis of the data and how the amounts have increased despite exclusion of inter-bank advances is an enigma.
The outstanding amounts of advances given in Table III put the credit expansion during FY 04 at Rs 288.687 [Rs 1357.946 billion - Rs 1069.259 billion]. Then, how could the private sector alone be the beneficiary of credit expansion of Rs 325..2 billion in the private sector alone is also an enigma.
NON-PERFORMING LOANS: Table 5.10 page 93 of AR FY 04 puts the aggregate non-performing loans (NPLs) at Rs 188.6 billion. The quarterly data about NPLs posted at SBP website (down-loaded by this scribe on 20th August,2004) indicates the quantum of NPLs as on the 30th June,2004 as Rs 220.032 billion. What causes the difference of Rs 31.432 billion is not clear.
That NPLs are not reducing has been admitted by the SBP on page 92 of AR FY 04 in the following words: " The distinct features with regard to non-performing loans during FY 04were (1) lower additions in fresh NPLs (2) higher write-offs during FY 04 and (3) better restructuring /rescheduling of old NPLs".
To show the reduced NPLs, SBP has adopted yet another method. Till September,2003, NPLs included the amount of the unrealized interest. With effect from 1st October,2004, this has been abandoned and now the amount of NPLs is exclusive of unrealized interest.
A strange argument has been given in favour of adopting the new methodology: " The practice of adding up accrued mark-up in the outstanding NPLs used to result in a continuous upward movement in NPLs even if every single new loan was serviced completely"- (see box 5.3 Page 93of the report).
Obviously, the loans which are serviced/ repaid as and when due do not fall within the purview of NPLs and the upward movement is solely on account of loans which are not being serviced/ repaid.
Therefore, exclusion of the unrealized interest from the data of NPLs would simply be tantamount to hiding the correct position from public and precluding the analysts from arriving at a correct conclusion as the figures of interest charged to memorandum account and excluded from NPLs is not being made available by the SBP for public consumption. We append Table IV giving position of accumulation of NPLs over some quarters.
It will be seen from Table IV that the NPLs went down from Rs 252.696 billion (30-09-2003) to Rs 222.657 billion (31-12-2003) even though the recovery figure of the quarter ended 31st December,2003 has been put at Rs 8.050 billion. This is the achievement of the new policy of excluding interest from the NPLs.
| Table IV- Non-performing loans [Amount is billion ripees] | |||
| Outstanding as on | Amount | Recoveries during the quarter ended on the date given in column 1. |
|
| 1 | 2 | 3 | |
| (A) 30-09-2003 | 252.694 | - | |
| (B) 31-12-2003 | 222.657 | 8.050 | |
| (C) Increase (+)/ decrease(-) | (-)39.039 | - | |
| (D) 31-03-2004 | 219.679 | 5.895 | |
| (E) Increase (+)/ decrease(-) | (-)2.978 | - | |
| (F) 31-06-2004 | 220.032 | 7.114 | |
| (G) Increase (+)/ decrease(-) | (+)0.353 | - | |
| Source: Data unloaded from SBP website from time to time. (C), (E) & (G) Figures represent difference over previous quarter |
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During quarter January-March,2004 NPLs reduced by Rs 2.978 billion only despite cash recovery of Rs 5.895 billion. If unrealized interest is included, this reduction will be converted into an increase.
The situation during April-June,2004 is still worse because NPLs have slightly moved upwards despite recovery of Rs 7.114 billion. If the excluded amount of interest element is accounted for, there will be substantial upward movement.
There is yet another yardstick for assessing the performance of the banking sector and the economic managers viz-a-viz NPLs. The NPLs stock as of 30th June,1999 inherited by the present economic managers was Rs 212.1 billion (page 93 of SBP annual report for 1999-2000).
This has increased to Rs 220.032 billion as of 30th June,2004 despite the "engineering" of excluding the interest element from NPLs after 30th Septmber,2003 and write-off of the principal and interest amounting to Rs 25.572 billion during the tenure of the present economic managers i.e. during the calendar years 2000 to 2003. For the details of the write-offs, please refer to my article published in Dawn EBR on the 13th September,2004.