Inflationary pressures in the terrorism-hit country seem to persist, as all indicators of money aggregates, including the money supply, keep growing at a rapid pace. With analysts foreseeing hyperinflation, the ever-increasing government budgetary borrowings from the banking system, coupled with some other attributing factors, always keep the local money market impounded with excess liquidity in circulation.
The State Bank of Pakistan’s (SBP) provisional data shows that the monetary expansion in the country climbed to 11.72 percent or Rs677.192 billion during July-May 21 FY11. The Broad Money, M2, expanded to 8.87 percent or Rs455.795 billion during the corresponding period last year. According to SBP data, the period under review saw over Rs246.513 billion banknotes circulating in the money market when that is compared with Rs183.337 billion of FY10, it depicts an upsurge of 34.4 percent or Rs63.176 billion in monetary terms.
The total demand and time deposits, including the Residents Foreign Currency Deposits, ballooned to Rs427.072 billion against Rs271.221 billion from last fiscal year. This, the analysts like Asfar Bin Shahid believe, are “very bad” figures that would take the already high inflation in the poverty-stricken Pakistan to new heights. “These are very bad figures. I wonder what the level of inflation would be,” viewed the senior economic observer.
The cash-strapped government’s heavy budgetary borrowings from the central and commercial banks are cited as a major reason for monetary expansion in the country. The State Bank statistics reveal that the banks’ budgetary lending to the funds-starved government grew by 66 percent or Rs252.222 billion to Rs633.375 billion during July-May 21, FY11. The government had borrowed Rs381.153 billion from the banks during the same period last year.
A breakup shows that the government’s, what the analyst call as “inflationary” borrowings from the central and scheduled banks stood, respectively, at over Rs153.47 billion and Rs479.902 billion during the said months, respectively. During the same period in FY10, the government owed Rs178.528 billion and Rs202.625 billion to the state and private banks, respectively.The net foreign and domestic assets of the banking system also registered an upward trend during the said period. The Net Foreign Assets (NFA) and Net Domestic Assets (NDA) of the banking system rose, respectively, to Rs184.576 billion and Rs492.615 billion against minus Rs31.839 billion and Rs487.634 billion of the same months last year.
