Private sector: Borrowing turns negative as businesses return Rs69b

Drop in credit off-take comes in backdrop of historic increase in loans.

Kazim Alam August 15, 2014


Credit to the private sector remained in the negative territory in the first month of 2014-15, as the country’s private businesses returned a net amount of Rs69.2 billion in July.

According to the latest monetary aggregates released by the State Bank of Pakistan (SBP), net private-sector credit off-take in July was almost equal to the figure recorded in the same month of the preceding fiscal year (negative Rs68.2 billion).

The drop in private-sector borrowing follows a historic increase in loans extended to private businesses during 2013-14 when they touched a six-year high of Rs383.9 billion. In the preceding fiscal year, private-sector credit had remained negative Rs19 billion.

Growth in private sector’s outstanding credit at the end of June was the highest in the electricity, gas and water supply category. Its outstanding credit at the end of 2013-14 was Rs278.6 billion, which was 21.7% higher than the corresponding figure at the end of 2012-13.

The year-on-year increase in outstanding loans in the agriculture, hunting and forestry category was 13.8% in 2013-14 while the rise in the manufacturing segment clocked up at 12.9%.

Outstanding loans owed by businesses in the commerce and trade category increased 7.9% to Rs223.2 billion at the end of 2013-14.

Analysts believe private-sector credit is a key indicator of economic growth and business sentiments with respect to the economy’s future prospects. Increased private-sector credit helps the gross domestic product expand as businesses use bank loans to meet their working capital needs and make long-term investments.

Monetary aggregates

Money supply in the economy shrank 1.23% during the first month of 2014-15 in contrast with contraction of 1.44% recorded in the comparable period of 2013-14.

The contraction in broad money between July 1 and August 1 remained Rs122.4 billion compared to the negative monetary impact of Rs127.5 billion recorded over the corresponding period of previous fiscal year.

Data shows the currency in circulation has increased by Rs173.9 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 Rs91 billion.

Total currency in circulation on August 1 stood at Rs2.3 trillion, SBP monetary aggregates show.

The contraction in money supply seems to be the result of a major decline in net federal government borrowings from the central bank for budgetary support. They amounted to only Rs106.8 billion in July as opposed to Rs448.3 billion during the first month of the last fiscal year. This translates into a year-on-year decline of 76.1% in net borrowings from the SBP between July 1 and August 1.

Net federal government borrowings from scheduled banks in July were Rs57.5 billion. They were in the negative zone during the same period of 2013-14, with the government retiring Rs281.8 billion during the last fiscal year.

Published in The Express Tribune, August 15th, 2014.

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SHB | 8 years ago | Reply

No interest rate is mentioned on this borrowing amount which was returned back to the banks. That could be one of the reasonn.

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