Government and private sector's incremental borrowings posted marginal increases of Rs 4.3 billion and Rs 2.2 billion during the week to reach Rs 91 billion and Rs 64.6 billion respectively on 28th October though domestic credit expansion (DCE) and monetary expansion decelerated by Rs 33 billion and Rs 39.2 billion to Rs 117.6 billion and Rs 78.7 billion respectively.
While the deceleration in DCE was caused by a more than matching decline in Other Items (Net) or OINs of the banking system reflecting higher other liabilities than other assets, the decline in incremental money supply was caused by both lower DCE and an increased drawdown of Net Foreign Assets or NFA of the banking system reflecting higher payments than receipts of liability-free foreign exchange.
Liability-free foreign exchange comprises export earnings, home remittances and grant-like foreign assistance, which entail liability in domestic currency only rather than foreign exchange.
In line with the decline in NFA, liquid foreign exchange reserves also declined by $41 million to $12,503.6 million on 28th October and have been reported to have skidded further to stand at $12,481 million on 11th November after scoring a small increase of $13 million for the week ended 4th November. NFA, therefore, is expected to exert much more depressing effect on money supply in the coming second week.
According to further details, money supply, which on 21st October showed a hefty surge to Rs 118 billion or 3.5 percent up over its June 30 level, dropped to Rs 79 billion or 2.3 percent on 28th October.
The drop in money supply occurred mainly on account of domestically mobilised deposit money where both demand and time deposits declined by Rs 31 billion and Rs 8 billion over the week while currency in circulation also decreased marginally viz, by only Rs 154 million.
No change was, however, reported in Resident Foreign Currency Deposits as a component of money supply, which normally becomes available after a time lag of more than one month but an update released on 16th November showed that their end September level indicated a decline of $50 million over their end June 2006 level though these showed an increase of $8 million over their end August level. It means that the SBP would revise the RFCDs figure upward while preparing the monetary profile of the country for the next week.
It may be recalled that in the corresponding period last year, money supply had increased only by Rs 18 billion or 0.6 percent mainly because of a massive drawdown of NFA, which amounted to nearly Rs 72 billion between July 1 and October 29, 2005 and an almost matching increase of Rs 63.5 billion in other liabilities of the banking system, which largely offset the increase of Rs 40 billion in government borrowing and of Rs 120 billion in private sector credit.
Within overall domestic credit expansion, government borrowing rose from Rs 86.7 billion on 21st October to Rs 91 billion on 28th October. Of these, budgetary borrowings accounted for Rs 88.7 billion showing an increase of Rs 4.5 billion over the week. Commodity operations of the government were responsible for Rs 3.9 billion increase in its overall bank borrowing.
At this level, these were slightly lower than the previous week. Other changes in central bank credit representing expenditure from Zakat and other similar funds or their accumulation showed a net decline of Rs 1.3 billion in credit since June 30.
The increase of Rs 4.3 million in budgetary borrowing occurred both on account of Federal government and provincial governments. The Federal government borrowed an additional amount of Rs 1.7 billion to take their total borrowing from the banking system to Rs 56.6 billion on 28th October while provincial governments also borrowed an additional Rs 2.8 billion to reach Rs 32.1 billion on the same date. Entire fresh borrowing was provided by the State Bank viz, Rs 2.9 billion to the Federal government and Rs 2.8 billion to the provincial governments. Scheduled banks' holdings of government securities witnessing government borrowing from them, however, declined by Rs 1.2 billion over the week.
As mentioned in the opening paragraph, scheduled banks extension of credit to the private increased by Rs 2.2 billion over the week and was entirely accounted for by commercial banks as specialised banks credit over the week declined marginally to Rs 4.2 billion. Credit to Public Sector Enterprises (PSEs) also improved slightly from previous week's minus Rs 6.2 billion to minus Rs 5.8 billion during the week under report. The increase was shared by both small PSEs as well as larger PSEs.
(For comments and suggestions [email protected])
Comments
Comments are closed.