KARACHI – Monetary expansion in the country continues to be on the higher side owing to a couple of factors, including the higher net foreign assets (NFA) and ever-increasing government borrowings from the banking system. The provisional data released by the State Bank of Pakistan (SBP) on Tuesday reveals that Broad Money (M2) witnessed a robust growth of 8.06 percent or Rs 465.663 billion in value terms during July 1 to February 19, 2010-11.
It shows a growth of Rs 218.54 billion or 88.4 percent over the last corresponding period ranging from July-Feb 20 (2009-10) when the Broad Money stood at 4.81 percent or Rs 247.123 billion. The period under review also saw the supply of money swelling to Rs 257.750 billion as compared to Rs 170.915 billion last year.
According to the SBP data, net foreign assets of the country’s banking system registered an increase of 84 percent or Rs 66.856 billion owing primarily to, what some analysts believe, record $6.1 billion worker remittances that are said to have set to cross the historical $10 billion mark by the end of current fiscal year. During the period under review, the NFA grew to Rs 146.379 billion against last year’s minus Rs 79.523 billion.
The net domestic assets (NDA), however, remained on the lower side at Rs 319.284 billion, marking a decrease of Rs 7.36 billion or 2.2 percent when compared with Rs 326.646 billion of FY2009-10. While analysts have repeatedly been warning that the country was inching towards a triple-digit “hyperinflation”, the inflationary factors like uncontrolled government borrowing from the banks continue to haunt over 180 million poverty-stricken masses in Pakistan.
The central bank figures show that the net government sector borrowing from the banking sector had skyrocketed to Rs 260.103 billion during July-February 19. The same figures stood at Rs 209.767 billion last year. Further, the central and scheduled banks lent over Rs 333.20 billion to the government for the latter’s budgetary needs that had consumed Rs 242.688 billion during the same period last year.
During the said period, the federal and provincial governments’ loans from the central and scheduled banks totaled Rs 91.463 billion and Rs 241.741 billion, respectively. This shows that the government has changed its borrowing focus from the State Bank of Pakistan to the scheduled banks, which are set to make huge profits out of the risk-free sovereign government guarantees.
But, this trend, the official and unofficial economic observers have warned, would ultimately lead to crowding out of the private sector that would reflect adversely on the overall growth in the country. A higher monetary expansion coupled with recent oil price increase is all set to push the country’s double-digit inflation further up with relevant indicators, like Consumer Price Index (CPI), already haunting the country at 14.19 percent in January (2011).
On Monday, the government passed on the international oil price hike to the consumer through increasing the local petroleum prices by 9.9 percent. The analysts predict that the inflationary move would take present inflation rate to new heights in the near future.
After the fresh increase, per liter petrol is being priced at Rs 80.19 against the previous Rs 72.96 and the light diesel at Rs 73.21. The inflationary signs started unfolding in parts of the country on Tuesday when the transporters in Punjab announced to increase fares by 20 percent in the most populous province.
