MONEY WEEK: government borrowings down by over Rs 16 billion amid continuing retirement of SBP debt

For the third consecutive week, the government managed to retire debt to the State Bank, this week worth about Rs32 billion with borrowing from scheduled banks simultaneously shooting up by over Rs14 billion.
After accounting for the rise of Rs1.5 billion in borrowing for commodities procurement, wheat being currently the main commodity, government borrowing over the week recorded a net decline of a little over Rs16 billion.
During the previous two weeks, the government had retired debt worth about Rs33 billion with debt owed to the scheduled banks rising at the same by about Rs23 billion.
The shift of government debt profile within the banking system is taking place at the behest of the IMF which mandated the government to retire a major part of its debt owed to the State Bank either to the scheduled banks within the banking system or to the non-banks like NSS schemes- the two sources of deficit financing which are considered relatively less inflationary.
Adjusting for downward changes in the NFA of the banking system and those in the non-government sector and a weakening of the build-up of other liabilities under OINS of the banking system, money supply over the week shrank by about Rs23 billion to a little over Rs78 billion during FY09 so far.
According to details, net government borrowing during the week fell by over Rs16 billion to Rs390 billion during the year to March 28.
The fall was entirely accounted for by borrowing for budgetary support, which declined by about Rs18 billion to Rs384 billion on 28th March. As already stated, the decline occurred entirely in borrowing from the State Bank (down about Rs32 billion to Rs284 billion) as borrowing from scheduled actually went up (up Rs14 billion to Rs100 billion). Government borrowing for commodity operations from scheduled banks, however, went up during the week by Rs1.5 billion to Rs8.3 billion.
Non-government sectors utilisation of bank credit during the week was also down by Rs9.5 billion to Rs161 billion during the year so far. However, it was private sector proper which faced the real brunt as credit there stood squeezed to Rs97 billion by March 28 compared with Rs133 billion a month ago on 28th February and Rs344 billion in the corresponding period last year (July 1, 2007 to March 29, 2008).
This may partly be the reflection of the on-going recession in the Pak economy and elsewhere in the world. According to available data, between January 2009 and February 2009, credit availed by private sector (business) declined by Rs16 billion with the single largest decline of Rs12 billion occurring under "finished/manufactured goods.
Credit utilisation by PSEs, however, went up during the week to Rs64 billion on March 28, 2009 compared with Rs62 billion a month ago on February 28 and just Rs31.5 billion in the corresponding period last year (July 1, 2007 to March 29, 2008).
Besides downward trend in government and private sectors borrowing from the banking system during the week, a further fall of about Rs1.5 billion in NFA of the banking system also contributed to deceleration in money supply which stood reduced to Rs78 billion on March 28 after having risen to Rs112 billion on March 07, 2009.
All in all NFA during the year so far has declined by well over Rs295 billion explained mainly by a trade deficit of over $12.7 billion compared with $14.5 billion in the comparable period of FY08. The fall of about Rs23 billion in money supply during the week was accounted for by a decline of Rs15 billion in currency in circulation and another about Rs8 billion in deposit money comprising rupee accounts as RFCDS remained unchanged over the week. (For comments and suggestions [email protected])