MONDAY FEBRUARY 25: Excessive government borrowing: massive contraction in private sector credit: SBP

ISLAMABAD: The net government borrowing from domestic sources stood at 92 percent of total credit extension during the last fiscal year, obstructing the implementation on monetary policy. This was pointed out by the SBP during a presentation to the Senate's Standing Committee on Finance.
A copy of the presentation, obtained by Business Recorder, shows a persistent increase in government financing requirements and as a result, the net government borrowing as a percentage of total credit has doubled since 2008. The net government borrowing was 56.9 percent of total credit during 2008 which increased to 75.6 in 2009 and in the subsequent year to 67.3 percent of total credit in fiscal year 2010. The net government borrowing increased to 78.6 percent of total credit in fiscal year 2011 and 92 percent in fiscal year 2012.
As a result of government borrowing, private sector credit as percentage of total credit was squeezed to 17.5 percent in 2012 from 39.8 percent in fiscal year 2008. The government financing requirements has increased to Rs1,237 billion, excluding Rs391 billion for power sector and commodities in the fiscal year 2012, up from Rs584 billion in 2008 and private sector credit squeezed to Rs235 billion in the last fiscal year, down from Rs408 billion in 2008.
The SBP also listed constrained foreign financial inflows, scheduled large debt repayments and rising burden of oil import because of high oil prices as factors for external sector weakness. Oil imports rose to $11.7 billion per annum during fiscal year 2008-12 from an average $4.9 billion per annum during fiscal year 2003-2007 and oil imports are projected to be around $14.8 billion.
According to SBP, oil price surged from around $41 per barrel in fiscal year 2005 to $112 per barrel in fiscal year 2012 and is expected to remain at around $110 per barrel on an average in fiscal year 2013. According to the Central Bank, fiscal weakness with an average of about 6 percent fiscal deficit in recent years was largely financed domestically, including borrowing from SBP, which is hampering monetary policy in a major way.