MONEY WEEK: domestic incremental loaning stagnates at less than half level achieved in fiscal year 2008

Already past nine months, the domestic incremental loaning, or what is commonly known as domestic credit expansion (DCE), in FY09 was limited to just Rs 288 billion, nearly Rs 312 billion less than the level of Rs 602 billion achieved in FY08.
Even at that level, incremental money supply was just limited to Rs 75.5 billion or 1.6 percent as the balancing figure of NFA of the banking system recorded a decline of over Rs 212 billion during the first nine months of the current fiscal year to April 04.
Last year monetary expansion during the corresponding period was of the order of Rs 330 billion amid a drawdown of NFA, which amounted to Rs 272 billion. Within domestic credit expansion in FY09, government and non-government sectors together generated monetary expansion worth about Rs 417 billion but net monetary expansion worked out to only Rs 75.5 billion because of a drawdown of net foreign assets which amounted to Rs 212 billion supplemented by a build-up of other liabilities under OINs which amounted to Rs 129 billion.
Last year in the same period, the two sectors together created money supply worth about Rs 704 billion but its overall impact was moderated by depletion of NFA to the extent of Rs 272 billion and a build-up of other liabilities under OINs of the system totalling some Rs 102 billion so that net monetary expansion stood curtailed to Rs 330 billion.
All in all, government sector''s borrowing had amounted to Rs 227 billion during the first nine months of FY09. As per break-up, Rs 215 billion were accounted for by budgetary borrowing and Rs 14 billion by commodity operations while there was a balancing impact of Rs 2 billion on account of other heads of operations.
Of the total budgetary borrowing, the State Bank provided Rs 114 billion while the remaining about Rs 101 billion were provided by the scheduled banks. Last year, in the corresponding period, government sector''s borrowing had amounted to about Rs 334 billion during the first nine months of FY08. Further break-up revealed that Rs 327 billion were accounted for by budgetary borrowing and Rs 6.6 billion by commodity operations.
Of the total budgetary borrowing, the State Bank provided Rs 425.5 billion while borrowing from the scheduled banks revealed a retirement of credit amounting to about Rs 99 billion.
Borrowing by the non-government so far during the current year had amounted to Rs 190 billion as against Rs 370 billion borrowed by the sector last year in the corresponding period of July 01, 2007 and April 05, 2008. In FY09 so far, of the total credit utilisation of non-government sector, Rs 47.5 billion were utilised by private sector proper and Rs 142.5 billion were availed by Public Sector Enterprises.
In FY08 in the comparable nine months, of the total credit utilisation of non-government sector, Rs 334 billion were utilised by private sector proper and Rs 36 billion were availed by Public Sector Enterprises or PSEs.
As regards the incremental money supply during the year, during the first nine months, new creation of money supply remained limited under the impact of depleting NFA, prevailing recession which necessitated lower off-take of credit by the commodity producing sectors, IMF conditionality on government sector which checked unwanted and lavish government spending and other liabilities build-up under OINs of the banking system which also dampens money supply. Overall incremental money supply during FY09 to April 04 amounted to Rs 75.5 billion as against Rs 330 billion in the same period last year.
Component-wise in FY09, currency in circulation increased by Rs 156 billion while deposit money stood squeezed by Rs 81 billion during the first nine months of the current year despite an increase of about Rs 21 billion in foreign currency deposits of residents. In contrast in FY08, of the total additional money supply of Rs 330 billion, Rs 168 billion were accounted for by currency in circulation and Rs 165 billion by demand and time deposits including about Rs 28 billion of RFCDs.
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