Amid persistent inflationary pressures, the country’s ailing economy is still haunted by double-digit growth in monetary expansion.
The existing inflation rate stands at 13 plus per cent and dims hopes for ease in pressures for the foreseeable future. Growth in monetary expansion in the country remained high at a rate 14.26 per cent or Rs823.997 billion during July-June 25 period of the just-concluded fiscal year 2010-11.
The corresponding period in FY10 had seen monetary expansion, also called broad money or M2, grow by 10.56 per cent or Rs542.500 billion, registering an alarming growth of 52 per cent or Rs281.497 billion. The government’s ever increasing budgetary borrowings from banks is widely considered to be a major factor for this abnormal growth in money supply.
The government has well indicated its thorough reliance on the bank borrowings which would equal of Rs800 billion during the first quarter, July-September, of FY12.
Figures released by the central bank Tuesday reveal that during the period under review, currency circulation in the country stood at Rs246.104 billion against Rs167.500 billion of the last corresponding period.
This shows an exorbitant increase of 46.9 per cent or, in monetary terms, Rs78.604 billion in money supply. The ‘other’ deposits with SBP saw a growth of Rs1.485 billion to aggregate at Rs3.498 billion against Rs2.013 billion of the corresponding period in FY10.
The total Demand and Time Deposits, including the Residents Foreign Currency Deposits, swelled to Rs574.394 billion, registering an upsurge of 54 per cent when compared with Rs372.986 billion from last year.
The central bank said that during July-June 25 the government’s borrowing from the banks climbed to Rs718.357 billion against Rs427.171 billion it had borrowed last year.
The political government has curtailed its loans from the central bank that during the said period contracted to Rs157.411 billion from last year’s Rs196.502 billion.
In contrast, government’s borrowing from scheduled banks skyrocketed by more than 100 per cent to Rs260.946 billion. Compared with last corresponding period’s Rs 230.670 billion, this depicts an unprecedented growth of 143 per cent or Rs330.276 billion.
Analysts fear that this trend would not only widen the fiscal deficit beyond the FY12 target of 4 per cent but also hinder economic growth.
Crowding out of the growth-oriented private sector, which could avail bank credits worth only Rs85.909 billion during July-June 25 is seen as a major repercussion.
The government, unwary of the constant warnings, kept its budgetary debts from banks high throughout FY11 and had borrowed Rs735.647 billion from the banks during July-June 11 of FY11.
