Record monetary expansion of 17pc

KARACHI: The just ended fiscal year witnessed a record monetary expansion of over 17 per cent, with record borrowing for budgetary support of about Rs1.6 trillion, reported State Bank on Thursday.
The massive monetary expansion was not reflected in the low inflation that prevailed during the fiscal year 2013. However, experts said that the impact of such a large monetary expansion would be reflected in fiscal year 2014.In the absence of private sector borrowing, the government is solely responsible of monetary expansion that would be inflationary.
Monetary expansion with higher economic growth plays a key role to accelerate economy, but zconomic growth could hardly be around 3.3pc for fiscal year-2013.The State Banks report showed that the government borrowed huge money for budgetary support that was more than the entire amount of monetary expansion.
Details showed that monetary expansion recorded growth of 17.21pc or Rs1.315tr.
The growth in the monetary expansion was 14.26pc (or Rs955bn) in FY-12.
Despite high monetary growth, inflation remained low till May, but started inching up in June.
The main inflation was 5.1pc for May while it shot up to 5.9pc in June.
Both the State Bank and analysts believe that the inflation may see an increase in FY-14.
This large monetary growth was due to huge government borrowing for budgetary support that rose to Rs1.59tr. It was much higher than the borrowing of Rs1.25tr made in FY-12.
The government borrowed money to meet its one of the biggest fiscal gap that rose to 8.8pc of the GDP in FY13.
This large fiscal gap forced the government to keep on borrowing as growth in revenue was stagnant.The previous government argued that in the absence of foreign inflows, borrowing was the only option to meet expenses.
However, government changed its strategy and made most of the borrowing from scheduled banks instead of the State Bank which prevented inflation, but crowded out private sector from banking system.
The State Bank recently eased up monetary policy by reducing the policy interest rate by 50 basis points to 9pc.
The decision received mixed reaction as some analysts found it appropriate in the wake of low inflation while others said the low interest rate could accelerate inflation. The new government has been making efforts to curtail the large fiscal deficit and is planning to limit the fiscal gap up to 6.6pc of the GDP.