KARACHI: Despite historically low interest rate and inflation, the monetary expansion remained less than the previous year at the end of the current fiscal year.
The State Bank’s latest report issued on Tuesday said the monetary expansion was 6.7 per cent (Rs755bn) during the first 11 months (till May 20, 2016) of the 2015-16 against the expansion of 7.94pc (Rs790bn) during the same period of the previous year.
The flow of liquidity was lower than the expectations of the government though the low inflation and interest rate environment normally leads to monetary expansion.
What is more concerning is the poor growth in private sector credit offtake along with the low government borrowings from the scheduled banks. To meet the fiscal deficit target, the government borrowed less than the amount it borrowed last year.
The government borrowing from the scheduled banks fell by 27pc to Rs733bn compared to over Rs1 trillion during the last fiscal year. For budgetary support it limited its borrowing to Rs501bn compared to Rs595bn in the last year.
However, the private sector borrowing did not pick up disappointing the economic team hoping to see a higher economic growth rate of 5.7pcin FY16. The private sector credit offtake fell to Rs285bn from the growth of Rs350bn in the first of the same fiscal year.
However, the borrowing was higher than the borrowing made during the same period last year which was around Rs159bn. Since the monetary expansion indicates the spur in the economic activity, the low expansion reflected weak performance of economic drivers with exception of a few sectors like construction.
Net foreign assets of the banking system also dropped to Rs119bn compared to Rs207bn during the same period of last fiscal. In FY17, the government has planned for higher spending on development projects that could bring more economic activities.