The week falling between September 5 and 12 witnessed sizable increases in both constituents of money supply, namely, currency in circulation (up Rs 18.5 billion) and deposit money (up Rs 19 billion) so that net decline in money supply during the year up to September 12 stood squeezed to Rs 37 billion.
Compared with previous week's figure, it meant an improvement of Rs 37.5 billion in money supply which, on the causative side, was accounted for by increases in net foreign assets (NFA) of the banking system (up over Rs 29 billion) and its NDA or net domestic assets (up Rs 8.3 billion) composed of corporate borrowing (up Rs 13 billion), government borrowing (up Rs 18 billion) partly offset by a shoot up of Rs 17 billion in other liabilities under other items net of the banking system, mainly comprising payables awaiting clearance.
The increase in government borrowing originated almost entirely from budgetary considerations though borrowing for commodity operations also increased slightly during the week. Budgetary borrowings rose from Rs 146 billion on September 5 to Rs 164 billion on September 12, an increase of Rs 18 billion. Borrowings from both sources, namely, the central bank and the scheduled banks, recorded increases but the tilt was towards banks accounting for nearly 46 percent of the figure (42 percent last week). The central bank's share stood reduced to 54 percent from previous week's 58 percent.
The size of retirements under commodity operations narrowed down to Rs 3.6 billion compared with Rs 4.3 billion on September 5, showing fresh borrowing under the head of about Rs 0.7 billion.
Considering the ongoing sugar crisis, there is strong possibility that TCP borrowed the amount for import of sugar. Other accounts (mainly Zakat), which showed net disbursements of Rs 0.5 billion on September 5, showed a net accumulation of Rs 0.7 billion, meaning inflow of Zakat receipts of about Rs 1.2 billion booked to these accounts by September 12.
It may be of interest to note that when funds are credited to these accounts, they depress the size of government borrowing by the same amount until fresh disbursements are made to the 'mustahiqqin' (the deserving). On balance, changes in commodity operations and Zakat account cancelled out their expansionary and contraction impact on government borrowing.
The week also witnessed an upsurge in corporate borrowing, driven mainly by financing of economic activities in the private sector where the sector made a fresh borrowing of Rs 13 billion as their overall retirement which reached well over Rs 82 billion on September 5, stood reduced to under Rs 69 billion on September 12.
Public sector enterprises (PSEs), on the other hand, retired Rs 0.5 billion during the week, pushing up their overall retirement figure to over Rs 19.6 billion. In the corresponding period last year, both private sector and PSEs were much more active in contributing to the domestic production activity, with the former retiring a nominal amount of only Rs 2.5 billion as on September 13, 2008 and the latter availing fresh credit amounting to as much as Rs 48 billion.
Since the State Bank of Pakistan has not started publishing its weekly balance sheets, beginning July 2009, how much of the increase in NFA consisted of any budgetary grants is not possible, which is reflected by increases in government deposits with the central bank other than those consisting of tax receipts, borrowings through sale of T-bills and non-bank borrowings through sale of CDNS instruments. The State Bank does update the T-bills auction profile and hopefully soon it will start publishing its weekly balance sheet and other data updates.
In the meanwhile, liquid foreign exchange reserves surged to $14,360.7 million on September 12, 2009 showing an improvement of about $118 million over the week.
In line with the continuing surge in liquid foreign exchange reserves, the rupee-dollar parity in the interbank market ruled relatively firmer at Rs 82.95 and Rs 83 for buying and selling at the close of the trading week on September 25 compared with Rs 83.02 and Rs 83.07 respectively at the close of the previous week. The pleasant note at the end of the current week was that there was no major difference between the rates prevailing in the official market and the open market. Such a development eases pressure on the interbank market.
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