News Paper: DAWN
Sunday, 18 Jul, 2010
Sunday, 18 Jul, 2010
The State Bank reported that the government’s massive borrowing from scheduled banks rose to one third of the entire stocks of the private sector borrowing. - File Photo.
KARACHI: The greater monetary expansion in fiscal year 2009-10 failed to come to the expectations of the monetary authority responsible for targeting inflation through tight fiscal policy.
The latest figures issued by the State Bank give a disappointing picture of the monetary policy as the monetary expansion went up by 12.46 per cent during the fiscal year just ended against 9.56 per cent of the preceding year.
The State Bank had been indicating that the monetary expansion would remain within the target of around nine per cent as it was a year ago. However, the result showed that inflationary pressure kept the economy under grip and it might persist in the new fiscal 2010-11.
The government’s massive borrowing also created some new records, though it changed the trend and borrowed mostly from scheduled banks.
The government’s borrowing from scheduled banks led to cross the mark of one trillion as it borrowed Rs309 billion in FY10.
During the last two years the government borrowed half a trillion (Rs536 billion) from scheduled banks reflecting banks’ approach towards investing in government papers, while attracting some criticism from the State Bank of Pakistan, which feels that little room was left for private sector credit growth.
The private sector increased its borrowing from banks during the fiscal as it borrowed Rs112.9 billion against a small figure of Rs17 billion borrowed during the preceding year.
However, it was still much below the borrowing then required to achieve an economic growth of six per cent.
The State Bank reported that the government’s massive borrowing from scheduled banks rose to one third of the entire stocks of the private sector borrowing.
The stocks of government borrowing at the end June 2010 were Rs1.047 trillion, while the stocks of private sector were Rs3.019 trillion.
The banks and financial institutions came under pressure of massive default, which crossed Rs440 billion forcing them to adopt a cautious approach. The cautious approach found the easy way to earn risk free money by investing in the government papers. This approach finally damaged the private sector contribution for the overall economic growth.
Analysts said the government would continue to borrow during the current fiscal as the spending will remain higher than the revenue generation because the hope for a jump in the economic growth is not in sight.
They said the agreement with IMF to avoid default on external front forced the country to compromise over economic growth by keeping the policy interest around 12 per cent. For the experts there was no hope that monetary policy would be eased in near future, which means the private sector would remain underperformed due to high cost of borrowing.
Bankers said in presence of inflation hovering around 12 and 13 per cent no one should hope for declining of interest rate. They said easy money would further escalate the inflation, which could be counter productive for the economy.
“The economy will improve once the terrorism inside the country stops and the massive spending on this war mostly in the North of Pakistan will be used for development projects,” said Abid Saleem, an analyst.
He said the political stability will stabilise the economy and will create hopes for the ever-increasing unemployed people in the country.
The latest figures issued by the State Bank give a disappointing picture of the monetary policy as the monetary expansion went up by 12.46 per cent during the fiscal year just ended against 9.56 per cent of the preceding year.
The State Bank had been indicating that the monetary expansion would remain within the target of around nine per cent as it was a year ago. However, the result showed that inflationary pressure kept the economy under grip and it might persist in the new fiscal 2010-11.
The government’s massive borrowing also created some new records, though it changed the trend and borrowed mostly from scheduled banks.
The government’s borrowing from scheduled banks led to cross the mark of one trillion as it borrowed Rs309 billion in FY10.
During the last two years the government borrowed half a trillion (Rs536 billion) from scheduled banks reflecting banks’ approach towards investing in government papers, while attracting some criticism from the State Bank of Pakistan, which feels that little room was left for private sector credit growth.
The private sector increased its borrowing from banks during the fiscal as it borrowed Rs112.9 billion against a small figure of Rs17 billion borrowed during the preceding year.
However, it was still much below the borrowing then required to achieve an economic growth of six per cent.
The State Bank reported that the government’s massive borrowing from scheduled banks rose to one third of the entire stocks of the private sector borrowing.
The stocks of government borrowing at the end June 2010 were Rs1.047 trillion, while the stocks of private sector were Rs3.019 trillion.
The banks and financial institutions came under pressure of massive default, which crossed Rs440 billion forcing them to adopt a cautious approach. The cautious approach found the easy way to earn risk free money by investing in the government papers. This approach finally damaged the private sector contribution for the overall economic growth.
Analysts said the government would continue to borrow during the current fiscal as the spending will remain higher than the revenue generation because the hope for a jump in the economic growth is not in sight.
They said the agreement with IMF to avoid default on external front forced the country to compromise over economic growth by keeping the policy interest around 12 per cent. For the experts there was no hope that monetary policy would be eased in near future, which means the private sector would remain underperformed due to high cost of borrowing.
Bankers said in presence of inflation hovering around 12 and 13 per cent no one should hope for declining of interest rate. They said easy money would further escalate the inflation, which could be counter productive for the economy.
“The economy will improve once the terrorism inside the country stops and the massive spending on this war mostly in the North of Pakistan will be used for development projects,” said Abid Saleem, an analyst.
He said the political stability will stabilise the economy and will create hopes for the ever-increasing unemployed people in the country.
-www.dawn.com
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