The inflationary pressures in the poverty-hit country are expected to persist in the months ahead as the cash-strapped government is heavily relying on the banking system for its ever-burgeoning budgetary needs.
The FY12 saw the average Consumer Price Index inflation standing at 11.01 percent which though is lower than the SBP’s estimates of 11-12 percent is still in double digit. The official and unofficial analysts predict the price hike to persist in double digits throughout FY13.
“On account of increased government’s borrowing, inflation outlook in FY13 is expected to remain elevated,” viewed Topline analyst Nauman Khan.
Having succeeded in curtailing its borrowings from the State Bank during first half of the just-concluded FY12, the funds-starved government seems to have shrugged off the warnings from economic observers that its dependence on the central bank’s loans would have a highly inflationary impact. The State Bank, in previous statements, has confirmed that it caters the government’s budgetary loans through printing new currency notes, a practice that reflects adversely on the supply of money in the currency market.
According to State Bank of Pakistan (SBP), during July-June 15 FY12 the government borrowed over 1.172 trillion from the central and scheduled banks. This amount is higher by 69 percent or Rs 479.27 billion than Rs 693.504 billion the government had borrowings from banks during corresponding period of last year.
“The huge volume of budgetary borrowing will exert further inflationary pressure in coming months ahead including issues on fiscal side which still stands unreciprocated,” viewed Hasan Raza, analyst at InvestCap Research. Alarming, however, is the fact that the government now seems to have shifted its borrowing focus from the scheduled to central bank, a highly inflationary practice. During the review period, the government borrowed over Rs 576.54 billion compared to Rs 148.079 percent, up by a mammoth 289 percent or Rs 428.465 billion in monetary terms.
The commercial banks also find little liquidity to be extended to the growth-oriented private sector as much of the money available with them is sucked up by the resource-constrained government.
The central bank reported that during the period under review the banks’ lending to the government marked an upsurge of 9.3 percent or Rs 51 billion to aggregate at Rs 596.232 billion compared to Rs 545.425 billion in same period in FY11.
The analysts say even this huge amount is set to swell in the days ahead owing to what they say the economic mangers’ failure to take “rational” measures to slash the official budgetary expenditure, specially the current (non-development) one.
Inflation averages 11.01% in FY12
The Consumer Price Index (CPI) inflation in June stood at 11.26 percent as against 12.29 percent in May 2012. Subsequently, average FY12 CPI inflation stood at 11.01 percent which is lower than SBP expected range of 11-12 percent as well as last year average inflation of 13.66 percent last year. On MoM basis, inflation stood at 0.04 percent as against 1.15 percent last month, which after a lapse of 3-months have come below 1 percent. Moreover, average monthly CPI during FY12 stood at 0.9 percent a slight improvement from 1.1 percent average monthly inflation witness in FY11. “Though still awaiting detail break-up, we believe the subdued number in the month of June is a reflection of soft food prices and decline in the petroleum prices on account of decline in international oil prices,” said Topline analyst Nauman Khan.
