Government sector borrowing which showed an expansion of Rs 17 billion on 15th April- mainly on account of budgetary borrowing (up Rs 55 billion) as commodity operations etc showed a net retirement of about Rs 38 billion- stood lower at Rs 7 billion only on 22nd- mainly on account of lower borrowing for budgetary support (down to Rs 43 billion).
As net retirement of credit under commodity procurement borrowing ended up at Rs 36 billion on 22nd showing credit expansion of about Rs 2 billion.
It may be of interest to note that prior to the onset of the current surge in foreign reserves, which mainly originated from the government sector on account of sovereign bond floatation and privatisation proceeds generating hefty rupee revenue for the government, its net borrowing stood as high as Rs 135 billion on March 11, 2006 compared with the whole year target of Rs 120 billion with budgetary borrowing having soared to Rs 168 billion as on that date compared with the whole year target of Rs 98 billion.
Government borrowing at the current low level (as on 22nd April) has, therefore, created a cushion of about Rs 113 billion for government bank borrowing (ie, Rs 56 billion for budgetary borrowing and about Rs 57 billion for commodity operations etc) till the end of June 2006.
It is very strange that, within government borrowing, commodity operations was the only segment which had shown credit retirement all along until even 22nd April (down Rs 35.6 billion) though wheat harvest is reportedly complete in Sindh, Punjab and the plains of NWFP. At this time last year, commodity operations had shown a credit retirement of only a little over Rs 2 billion indicating thereby a modest expansion trend.
Private sector borrowing, on the other hand, which stood at Rs 340 billion during the year so far to 15th April continued its onward march to reach Rs 345 billion on 22nd April including, besides general purpose advances, an expansion of credit of about Rs 8 billion under Continuous Funding System (CFS) and a net retirement of about Rs 1.1 billion between July 02, 2005 to April 22, 2006 under ''Loans and Advances to Scheduled Banks through SBP''s Export Refinance Scheme'' though it almost evened out by about 6th May according to SBP''s advance data.
An additional feature of bank credit to private sector was that entire credit was given by commercial banks (up Rs 360 billion viz., higher by Rs 4 billion even over FY05''s corresponding period) while specialised banks (including ZTBL, PPCB, IDBP and SME Bank) squeezed their credit operations by about Rs 15 billion indicating negative asset build-up on this account against a somewhat positive build-up last year.
THE QUESTION ARISES: what specialised service these banks are rendering to the sectors they were created for and why the central bank has allowed the commercial banks to continue with the overheating of the economy.
Bank credit to PSEs, in the meanwhile, rose to Rs 3 billion principally on account of such heavy weights as Wapda, KESC, OGDC, PTC, PIA and Pak Steel (up Rs 4 billion) as other PSEs showed a net retirement of about Rs 2 billion though ''PSEs Special Account- Debt Repayment with SBP'' showed a fund utilisation worth about Rs 0.6 billion.
These changes occurred against an overall targeted retirement of Rs 10 billion against all these items. Interestingly, when compared with the stock data as on 30th June 2005, it transpired that while aforementioned six major PSEs added Rs 4 billion to their debt liabilities to banks raising these to over Rs 36 billion as on 22nd April 2006, other PSEs lessened their similar debt burden by about Rs 2 billion to Rs 43 billion on the same date.
However, while last year, ''PSEs Special Account- Debt Repayment with SBP'' showed a net fund accumulation of Rs 1.6 billion over FY04 (including Rs 1.1 billion added in the corresponding period of FY05), this year so far the Account is showing a net fund utilisation of Rs 0.6 billion.
Overall picture thus indicated that PSEs, as a whole, were faced with a difficult financial situation.
While the foregoing developments in credit expansion (DCE or NDA) should have led to a domestic credit expansion of about Rs 354 billion and hence an equivalent amount in terms of monetary expansion, actual DCE was lower at Rs 257 billion because of a net contraction impact of Rs 97 billion of other items (net) or OINs indicating higher other liabilities of the banking systems than its other assets.
The reduced impact of DCE on monetary expansion was, however, partly neutralised by rising net foreign assets (NFA) of the banking system (up Rs 38 billion), because of factors explained in the opening paragraph of this note, resulting in net monetary expansion of about Rs 295 billion or 10 percent over FY05 with currency in circulation accounting for some Rs 89 billion of it.
The increase in NFA of the banking system simultaneously meant increase in the liquid foreign exchange reserves of the country which rose to $12,910.2 million or close to the $13 billion mark on 22nd April.
According to advance SBP data, actual liquid foreign exchange reserves crossed the $13 billion mark on 29 April to stand at $13,016 million and ended up higher at $13,054 million, resisting thereby any downward tendency, so far with both SBP''s and banks'' FE holdings increasing by $10 million and $28 million to $10,655 million and $2,399 million respectively.
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