Govt emerges as the largest borrower

Govt’s share in total borrowing increases to 43 per cent from last year’s 40 per cent.

KARACHI: The government has once again emerged as the main borrower during July and August to meet its financial needs given the limited external inflows and existing funds constraints, according to Elixir Securities.

The government’s share in total borrowing increased to 43 per cent from last year’s 40 per cent while overall borrowing rose by 1.4 per cent during the first two months of fiscal year 2011.The government’s borrowing stood at Rs2.5 trillion during the first two months of FY11 against last year’s Rs2.11 trillion.

Despite zero net borrowing targets insisted by the International Monetary Fund, the government relied on the State Bank of Pakistan (SBP) for its financing requirements, said Elixir Securities analyst Hifza Zia.

Private sector lending declines

Credit to the private sector fell by 0.4 per cent to Rs3.3 trillion during the first two months of fiscal year 2011.

The manufacturing sector, with the highest share in borrowing in the private sector, witnessed a net attrition of Rs24 billion compared with a decline of Rs52 billion in the same period last year, Zia said in the company research report.

Consumer financing in doldrums

Consumer financing growth has been in the negative zone since 2008 and the quantum has reduced over time.

Among the major consumer financing heads, personal loans suffered a major blow with a net fall of Rs2 billion, followed by auto and home loans with a net decline of Rs2 billion and Rs950 million, respectively.

Outlook

Given a continuous rise in government borrowing from banking channels, to bridge the fiscal gap, the crowding out of private sector borrowing is expected to prevail in the near term and could aggravate further due to ongoing monetary tightening stance adopted by the SBP, said Zia.

Published in The Express Tribune, October 7^th, 2010.