MONEY WEEK: money supply increases by Rs 31 billion amid major improvement in net foreign assets

Money supply during FY09 accelerated to Rs 59 billion on December 27 after contracting to Rs 28 billion a week ago on December 20, 2008, according to latest SBP monetary update which became available on SBP website world-wide on January 13, 2009.
Causative factors indicated that this happened almost entirely because of a major improvement in NFA (net foreign assets) of the banking system improving by Rs 31 billion from minus Rs 345 billion on December 20 to Rs 314 billion on December 27 as NDA of the system remained more or less stationary around Rs 373 billion.
The NDA of the banking system which generally contributes to monetary expansion remained unchanged at the previous week's level despite a rise about Rs 4 billion in government borrowing rising from Rs 288 billion to Rs 292 billion and another smaller rise of about Rs 2.6 billion in non-government borrowing (comprising a rise of Rs 4.4 billion on account of private sector proper and a contraction of Rs 1.8 billion on account of public sector enterprises) was neutralised by a more or less matching build up of other liabilities under other items net (OINs) of the banking system rising from Rs 123.6 billion in the preceding week to Rs 129.5 billion during the week under report.
As against this, during the corresponding period of 2007, incremental money supply stood way above at Rs 247.5 billion on 29th December mainly because of high off-take of bank funds by the government sector (plus Rs 197 billion compared with Rs 192 billion on 22nd December) as well as the non-government sector (plus Rs 224 billion compared with Rs 207 billion on 22nd December) amid relatively lower draw-down of NFA (minus Rs 136 billion- the same as in the previous week) and lower build-up of liabilities on account of OINs of the banking system (minus Rs 42 billion- again the same as in the preceding week).
Since NDA of the banking system has remained more or less unchanged at previous week's level, analysis of government and non-government sector (private sector plus public sector enterprises) borrowing also remained more or less unchanged as explained in the previous week's review.
In the meanwhile, however, the State Bank has provided an analysis of advances covering domestic operations of 39 scheduled banks [including 35 commercial (4 public sector, 25 local private sector and 6 foreign commercial banks) and 4 specialised banks] operating in the country for the period January 2002 to December 2002 as on the last reporting weeks of the 12 month periods.
According to these analyses, year 2002 witnessed for the first time in the history of Pakistan bank advances cross the rupees one trillion barrier in December 2002. These had totalled Rs 988 billion as on the last reporting week of January 2002 since the independence of the country in August 1947. As on the last week of December 2002, their total worked out to Rs 1, 003.3 billion.
This worth of advances is in current rupees. Therefore, we cannot say how much it measured in terms of 1947 rupees to have an idea of the real growth of advances over time. The State Bank could take it upon itself to calculate the real worth of this growth after adjusting the inflationary erosion of the rupee over the years.
This would render the data more interesting for the readers and the analysts. According to the same statistics, in the calendar year 2002, the net growth on last week reporting basis amounted to a little over Rs 12 billion.
During 2002, however, the lowest level of advances was recorded in September 2002 when these had plummeted to Rs 931 billion but their level gradually rose month after month and then crossed the rupees one trillion mark by the fag end of December that year scoring an increase of Rs 69 billion in advances in just three months.
Since December 2002, the level of advances touched the zenith of over Rs 3 trillion in just 6 years at an average increase of about Rs 333 billion each year. To be exact, advances increased by Rs 170 billion in 2003, by Rs 420 billion in 2004, by Rs 454 billion in 2005, by Rs 365.5 billion in 2006, by Rs 241.5 billion in 2007 and by Rs 490 billion in 2008.
Although year 2008 witnessed the record growth of advances but then, on a year on year basis, the inflation also touched a record high of 23.3 in December 2008 after ruling at 25.3 in august 2008.
The data also revealed that since December 2002, it was only in February 2003 when the level of advances once more dipped to less than rupees one trillion- Rs 985.6 billion to be exact- as on the last reporting week of that month. During all these calendar years, the highest outstanding level of advances was achieved as on the last reporting week of December each year mainly because of banks efforts at window dressing aiming at larger balance sheets to show higher growth factors.
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