Government asked to retire borrowings from SBP by Rs 62.3 billion

The State Bank of Pakistan has fixed monetary expansion target of 13.7 percent for FY08 and has asked the Federal Government to retire Rs 62.3 billion of the credit from the central bank in current financial year. A monetary statement, approved by the Central Board of Directors of SBP, was announced by the Governor SBP Dr Shamshad Akhtar, on Tuesday.
She said the target for monetary expansion is consistent with real GDP growth (7.2 percent) and inflation target (6.5 percent) and the residual borrowing from banking system is the enhancement in the Net Domestic Assets (NDA) of SBP. In Budget FY08, the Minister of State for Finance had indicated bank borrowing for budgetary support at Rs 130 billion in FY08.
Instead, SBP has recommended, under section 9A of the SBP Act 1956, to borrow Rs 200 billion from scheduled banks and retire Rs 62.3 billion from SBP, ie, shift this amount towards banks.
Governor Akhtar said SBP has advised the government to tap Rs 30 to 40 billion through issuance of Sharia Compliant papers - this will help Islamic Banks to meet their Statutory Liquidity Requirement (SLR) and also issue Pakistan Investment Bonds amounting to Rs 100 billion.
SBP, she said, also advised the government to adopt quarterly ceiling on budget borrowings from SBP and adopt a more balanced domestic debt strategy whereby budget is financed from long-term financing sources that are less inflationary.
Governor said better fiscal and monetary coordination with explicit ceiling on government borrowing from SBP and co-ordinated quarterly borrowing coupled with tightening of refinancing windows should help reduce pressure on reserve money growth.
The monetary statement says that lower government demand of borrowing from banking system will provide more space, within overall money growth, to finance private sector requirements. More importantly, SBP is aiming to develop financing initiatives to cater to the credit needs of private sector and seek increase financial penetration and access on a broader front.