Broad money supply (M2) posted a negative growth of 0.71 percent during the current fiscal year (July 1 to October 3, 2014). As per SBP data, Net Domestic Assets (NDA) of the banking sector declined since the start of FY15 forcing the M2 growth to fall by 0.71 basis points or Rs 70 billion during the period under review.
According to InvestCap research report on M2, in PKR term, NDA witnessed a decline of Rs 259 billion during the period. The key reason behind the NDA dip was a mammoth Rs 131 billion YoY dip in government sector borrowings and Rs 128 billion YoY decline in other items during FY15 (July1 to October 3, 2014). On YoY basis, NDA turned negative to Rs 66 billion from positive Rs 193 billion while the NFA witnessed a rise of 100 percent as on October 3, 2014.
The report said that government borrowing decreased by 49 percent YoY mainly on account of less budgetary support borrowings. Budgetary support borrowings dipped by 44 percent YoY to Rs 165 billion during the period under review with the major drop came from SBP borrowings.
Government has slow downed its borrowings from SBP at the cost of higher borrowing from commercial banks. SBP borrowings plunged by 81 percent YoY while at the same time borrowing from commercial banks reached at Rs 73 billion during July to October 3, 2014 compared to Rs-194 billion in July to October 4, 2013, it added. Borrowing for commodity operations under government sector borrowing remained flat on YoY basis. Credit to non-government sector witnessed an increase, where the same reached at Rs 2 billion from Rs-3 billion.
Components analysis reveals that credit to Public Sector Enterprises decreased by Rs 38 billion while Credit to private sector, the main component of the head, was up by Rs 43 billion. Going forward, borrowings for budgetary support will increase and the same witnessed a jump of 115 percent on fortnightly basis as on October 3, 2014, analysts said. "We expect the head will further rise on delay in IMF's 4th tranche under EFF arrangement, shortage in revenue collection, increased expenditures on rehabilitation of flood victims and on operation Zarb-e-Azb and less interest of int'l donors and other lenders on IMF concerns," they added.