Government borrowing reaches Rs413.1 billion

Budgetary support leading to higher inflation.

KARACHI:

Net federal government borrowings from the central bank for budgetary support have reached Rs413.1 billion since the start of the current fiscal year, according to data recently released by the State Bank of Pakistan (SBP).

Net borrowings from the SBP between July 1 and April 11 remained 240.9% higher than Rs121.1 billion that the federal government borrowed from the central bank in the comparable period of 2012-13.

Analysts believe excessive borrowing from the central bank for budgetary support is one of the main reasons for relatively higher inflation recorded last month.

The year-on-year headline inflation in March clocked up at 8.53% as opposed to 7.93% in February despite the rupee’s newfound strength and lower oil prices.

The government ran a budget deficit of 2.2% of gross domestic product (GDP) in the first half of 2013-14. But many economists expect that the deficit for the whole fiscal year will likely be higher than the government’s target despite substantial money generated through the auction of 3G/4G licences ($1.1 billion) and the issue of Eurobonds ($2 billion) in recent weeks.

As for government borrowings from commercial banks, which remained negative for many months in the current fiscal year, federal authorities seem to have increased their reliance on the banking sector.

Net federal government borrowings from scheduled banks until April 11 remained Rs292.2 billion. In contrast, the corresponding figure for 2012-13 was a hefty Rs864 billion. On a year-on-year basis, this reflects a decline of 66.1%. But it should be noted that net federal government borrowings from scheduled banks until March 21 were actually a negative Rs91 billion in contrast with a hefty Rs777.5 billion recorded in the same period of 2012-13.

SBP data shows banks’ credit to the private sector has increased substantially of late. Credit to the private sector between July 1 and April 11 stood at Rs292.5 billion, up a massive 136.1% on a year-on-year basis.

Overall, money supply in the economy has increased by 5.7% since the start of the current fiscal year as opposed to the growth rate of 8.9% recorded in the comparable period of 2012-13.

The expansion in broad money – commonly referred to as M2 – between July 1 and April 11 remained Rs503.9 billion, which is significantly lower than the monetary impact of Rs681.9 billion recorded over the corresponding period of the last fiscal year.

Provisional data on monetary aggregates shows the currency in circulation has increased by Rs261.8 billion since the start of the current fiscal year. The increase in the currency in circulation during the same period of the last fiscal year was Rs295.8 billion.

Total currency in circulation as on April 11 stood at Rs2.2 trillion, SBP’s monetary aggregates show.

Published in The Express Tribune, April 27^th, 2014.

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