Where government eats the private pie

It is nice to see that private sector credit picked up last year. Though, the boa constrictor (read: the government) continued to eat large portions of the credit pie, full year credit numbers just released by the central bank show that private borrowers managed to take Rs 97.6 billion worth of fresh loans in FY10, as against the net retirement of Rs 10.1 billion in the year before.
Included in the list of top borrowers is the manufacturing sector, where textile sectors net retirement of Rs 12.8 billion was offset by fresh loans obtained by tobacco and chemical businesses.
Another major chunk of credit was booked by those involved in electricity, gas and water businesses, who took fresh loans of Rs 61 billion in FY10, compared with Rs 43 billion in the year before.
But of course, this doesn mean that credit recovery will pace up in the months to come; in fact a slowdown in credit off-take is more likely in the offing.
Consumers are still shying away from the credit counter which implies that there aren enough demand pull forces on the cards to convince producers to ignite their engines to their full potential.
Apart from money borrowed for automobile purchases, the retirement of which halved during FY10, aggregate consumer financing remained in the red; SBP data reveal that consumers retired about Rs49.5 billion last year, versus a retirement of Rs 65 billion in FY09.
Then of course, there is that long standing issue of ballooning fiscal and quasi fiscal borrowing, which has been elbowing out private borrowers since the whole crisis began in 2008.
Some Rs500 billion is currently caught up in quasi fiscal borrowing, until the retirement of which things appear damp for businesses. Even if this amount was let free, inflationary expectations and risks of higher interest rates seen materialising by September will keep overall credit demand on the lower side.
In other words, for all those bankers out there, especially those with higher stake in the consumer segment, time still isn ripe to make hay; not least until the promised bilateral foreign inflows starting pouring like the monsoon rains.