MONEY WEEK: private sector borrowing dips to negative while government's shows major surge

Government borrowing surged by Rs 67 billion in a single week, while private sector borrowing dipped to the negative range--a rare occurrence in the history of private sector banking habit close to the end of a fiscal year. Private sector borrowing ended up negative to the extent of over Rs 3 billion during the week ended the June 7, 2009 and, in all, the sector retired some Rs 17 billion to the banks during the week under report.
The other segment of the corporate sector, viz, PSEs, also retired about half a billion rupees worth of bank credit. Besides the foregoing retirements by the corporate sector, there occurred a liability build-up of about Rs 32 billion under OINs of the banking system, which is a causative factor for NDA of the system to rise or decline in accordance with the change. And, along with NDA, net foreign assets or NFA of the banking system also brings about changes in money supply in consonance with the character of the change in NFA.
This year, NFA has been depleting week in and week out and it depleted this week also in the amount of some Rs 7.5 billion. The net impact of these behavioural changes in private sector--PSEs, OINs (all being NDA components) and NFA--of the banking system was that it offset the expansionary impact of huge government borrowing (another NDA component) during the week to the extent of Rs 57 billion, resulting in net expansion of only Rs 10 billion in money supply, which rose to Rs 314 billion, or 6.7 percent, during the year to June 7.
Analysis of government borrowing showed that of the total increase of Rs 67 billion during the week, budgetary support accounted for over Rs 61 billion (rising overall to about Rs 383 billion), and commodity operations (principally wheat) for about Rs 6 billion (rising overall to over Rs 197 billion). Further analysis of budgetary borrowing showed that over Rs 53 billion were borrowed from the central bank while Rs 8 billion were borrowed from scheduled banks. The two borrowing figures thus rose to Rs 212 billion and Rs 170.5 billion, respectively, for the year so far, reversing the trend seen immediately before the beginning of the operation 'Rah-e-Rast,' when, in an effort to arrest inflation, more SBP debt was being retired by the government by borrowing more from the scheduled banks. But then, wars have their own cost and are fought side by side the burgeoning deficits and rising inflation.
Available detailed data for corporate sector (viz private sector and PSEs) up to end of April showed that till then private sector had made a net borrowing of less than Rs 23 billion, shared between 'Private Sector Business' (up Rs 78 billion), Trust Funds and NPOs (down about Rs 2 billion), Personal loans (down Rs 48 billion) and Others (down about Rs 5 billion).
Further analysis of 'Private Sector Business' showed that bank credit of about Rs 78 billion, availed by this sector during FY09 to the end of April, was largely shared by Agriculture, etc (up about Rs 4 billion entirely for crops as other subsectors showed net retirement).
Manufacturing up Rs 64 billion mainly shared by 'Food products and beverages' (up Rs 27.5 billion), Textiles (down Rs 11 billion shared by almost all subsectors), Wearing Apparel etc (up over Rs 3.5 billion), Paper and products etc (down Rs 4 billion), Chemicals (up Rs 23 billion), Non metallic minerals (up Rs 11 billion), Electrical Machinery (up Rs 10.5 billion).
Motor vehicles (up Rs 7 billion), Other transport equipment (up Rs 3 billion), Electricity and Gas supply (up about Rs 37 billion), Construction (down about Rs 10 billion), Commerce and Trade (down Rs 14 billion shared by all sub sectors except retail trade), Hotels (up Rs 11 billion), Other private business (down Rs 4 billion). Other sub sectors exhibited only minor deviations in the use of credit.
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