Budgetary loans make banks’ NDAs cross Rs100 billion

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The massive budgetary borrowings by the cash strapped federal and provincial governments from the commercial banks have increased the latter’s Net Domestic Assets (NDAs) by over 68 per cent during first four months of the current fiscal year, 2011-12.
Despite this astronomical increase in NDAs, the monetary expansion in the inflation stricken country was set in the red zone and was recorded at 0.07 per cent or Rs4.882 billion, in monetary terms, during the July-October 28 period. The expansion in broad money, also called M2, was 1.94 per cent or Rs112.036 billion during the corresponding period last year. The decrease in monetary expansion, the analyst believe, is because of the banks’ declining net foreign assets (NFAs) that during the review period contracted to minus Rs96.098 billion against a positive growth of Rs52.140 billion during the same period last year.
As expected, the banks’ NDAs are upward and skyrocketed by Rs41.083 billion to Rs100.979 billion during the period under review. Last year, the same was counted by the central bank at Rs59.896 billion. The economic observers attribute this exorbitant increase in the banks’ domestic assets to heavy budgetary borrowings by the funds starved government.
According to State Bank, the government loans from the banking system climbed by 36.4 per cent or Rs64.337 billion to Rs241.087 billion compared to Rs176.750 billion of last corresponding period.
The government, however, has succeeded in arresting its loans from the central bank at Rs64.597 billion against last year’s Rs126.618 billion in order to check what the analysts warn, already double digit inflationary pressures. But, it is borrowing extensively from the commercial banks which during the review period lent Rs176.496 billion, up 252 per cent or Rs126.365 billion compared with last year’s Rs50.131 billion. The economists believe that continued and excessive government borrowings from the risk averse banks would lead to a sharp rise in the latter’s domestic assets in the near future. Other indicators of the monetary expansion are also showing a downward trend with currency in circulation shrinking to Rs91.068 billion from Rs140.915 billion in last year. The analysts warn the resource constrained government against opting for easy sources of money led by bank borrowings instead of introducing long-term economic reforms that, they say, might prove to be short term bitter political pills, but would bring the ailing economy back on track in the long run.