Six weeks into the fiscal year, and hefty foreign inflow on account of the CSF is taming the monetisation of the fiscal deficit amidst keeping current account balance in green. Plus this is the dull season to private credit with not much spending on government development side yet.
Despite Rs20 billion net foreign inflows; a massive decline of Rs121 billion of domestic banking assets resulted in contraction of M2 to the tune of 1.3 percent (Rs102 bn) by the week ending Aug 10. With around $1.14 billion coming from the US government to our fiscal support, government pounced upon the opportunity to retire Rs210 billion of its debt notes owed to the State Bank of Pakistan as compared to increase of Rs32 billion in the similar period last year.
Nonetheless, commercial banks continued demonstrating their generosity to the government papers as they virtually matched the retirement of latters debt to the central bank - this amount is double than what the government borrowed from commercial banks in a similar period last year.
In a nutshell, the difference between government borrowing in the first six weeks this year and the last year is virtually the amount received in lieu of the CSF.
On the liability side, banks deposits (total demand and liabilities) fell by Rs231 billion (last year Rs191bn), whereas the currency in circulation soared by Rs129 billion making the total money supply to decline by Rs102 billion in the first six weeks of this fiscal year.
The private sector credit has nothing much to hail about; yet, the fall is slighter as compared to the previous year, as it declined by a mere Rs53 billion. The fresh seasonal credit to the textile and sugar sectors and the private sector may kick start come October. And with general elections coming up as well, government spending is expected to boost in the coming months.
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