MONEY WEEK: monetary expansion swells by 2.26 percent

KARACHI (March 16 2009): According to March 13 update of the State Bank of Pakistan, monetary accounts of the country showed an overall increase of over two percentage points (2.26 percentage points, to be exact) for the first time in the fiscal year FY09 on February 28 compared with an increase of only 1.48 percentage points on 21st February 2009.

The increase of about 0.8 percentage points in the countrys money supply (or Rs 36.2 billion) during the week was ascribed to a major increase in NDA of the banking system (which amounted to some Rs 26.7 billion, mainly representing a major reduction in the liability build-up under the systems OINs and a modest increase in the private sector credit) and an improvement in its NFA (which amounted to some Rs 9.5 billion). Incremental money supply, during the year so far, thus reached Rs 105.8 billion on February 28, 2009.

Composition of incremental money supply of Rs 36.2 billion during the week indicated that the entire increase occurred in deposit money (up Rs 47.8 billion, though compared with end-June 2008 still indicating a decline of Rs 43.6 billion) as currency in circulation actually declined (down Rs 11.7 billion) to Rs149.4 billion.

According to details, NDA of the banking system during the week surged by Rs 26.7 billion and comprised of a major reduction in net other liabilities of the system (which worked out to Rs 18.9 billion to minus Rs 160.7 billion on 28th February), an increase of Rs 6.1 billion in non-government borrowing (private sector up about Rs 4 billion, public sector enterprises (PSEs) up over Rs 2 billion) and an increase of Rs 1.7 billion in government borrowing (budgetary borrowing up Rs 0.7 billion to Rs 362.4 billion, government commodity operations up Rs 1 billion to Rs 13.3 billion).

In the comparable period last year, non-government borrowing had amounted to Rs 320.5 billion, divided in main among private sector (Rs 289.3 billion) and PSEs (Rs 31.6 billion), while government borrowing amounted to Rs 287.6 billion, shared between budgetary borrowing (Rs 306.4 billion) and commodity operations (minus Rs 18.2 billion).

Minor developments also occurred under other credit heads in both government and non-government sectors. Within budgetary borrowing, of total of Rs 362.4 billion borrowed so far during the year, Rs 299.6 billion were accounted for by indebtedness to the State Bank, while the remaining about Rs 62.9 billion were owed to the scheduled banks. The respective totals in the corresponding period last year were Rs 306.4 billion, Rs 359.3 billion (SBP) and minus Rs 52.9 billion (scheduled banks). From inflation point of view, composition of budgetary borrowing between the central bank and commercial banks is relatively healthier during the current year than in the previous year though considerable scope exits to achieve a still better composition.

According to other details, NFA of the banking system improved by Rs 9.5 billion from minus Rs 311.7 billion on 21st February to minus Rs 302.2 billion on 28th February 2009.

The detailed consolidation of the accounts of the State Bank of Pakistan showed that the entire improvement occurred in the balances held by the scheduled banks as balances held by the State Bank in fact declined by over Rs 3 billion.

In the meanwhile, the countrys liquid foreign exchange reserves, which declined to $10,166.0 million (SBP $6,734.3 million and Scheduled Banks $3,431.7 million) on February 20, continued declining in the subsequent weeks reaching $10,138.3 million (SBP $6,687.1 million and scheduled banks $3,451.2 million) on 27th February, and further to $10,052.6 million (SBP $6,613.0 million, scheduled banks $3,439.6 million) on 6th March 2009.

Following the trend in liquid foreign exchange reserves, weighted average customer exchange rate, which deteriorated to Rs 79.8511 and Rs 80.0345 for buying and selling on 3rd March, suffered further losses and stood at Rs 80.4924 and Rs 80.6796 on 7th March and Rs 80.3108 and Rs 80.4980 respectively on March 14, 2009.