The government has been cashing on its image as the safest of all the borrowers, since the start of the cyclical slowdown, but the oft-cited crowding out didn necessarily begin until the start of calendar year 2010.
The logic behind this view is the fact that difficult economic conditions had kept the borrowers at bay from the credit counters, leaving the window open for the governments gigantic needs.
In real sense, the elbowing out of private borrowers started when after three straight months (Oct-Dec) of net borrowing, the private sector was gradually shoved aside by the fiscal managers.
With the passage of time, as Pakistans so-called Friends remained elusive while other bilateral commitments fell short of the originally promised amount, fiscal mangers became desperate to fill the budgetary gap and reduced their debt from the central bank in order to meet IMFs conditions.
The result is what you see in the graph here, titled
et monthly borrowing. Private borrowers have been continuously retiring their loans (on a net basis), with May 2010, witnessing the biggest month-on-month drop since August 2009.
And if credit is any guide, one might expect a drop in large scale manufacturing output with a lag, given the historical relationship between growth in credit and the LSM index.
So in short, much depends on the quantum of credit supplied to the economy.
Kerry-Lugar hopefuls might point out that liquidity might ease in the near future. And it might. But the rebound in bad loans as earlier discussed covered in these columns might still keep banks wary of private borrowers in favour of the government.
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