Pakistan KARACHI: Monetary expansion in the first seven months of the current fiscal year as reported by the State Bank on Tuesday grew at an alarmingly high rate of 8.6 per cent, reflecting uninterrupted government borrowing from banking system and the central bank.



The SBP reported that both net domestic asset (NDA) and net foreign asset (NFA) of the banking system were higher than last year, pushing the broad money (M2) to expand at a bigger pace.

Higher monetary expansion, while reflecting the deteriorating fiscal discipline, is also a sharp catalyst for acceleration in inflation. The January inflation slightly slipped to 14.19 per cent compared to over 15 per cent in December.

However, government geared up its borrowing and borrowed equally from both the State Bank and scheduled banks. From July to Feb 4, the government borrowed Rs231 billion from each source.

The SBP said the government has borrowed Rs411 billion as budgetary supports during the first seven months of the current fiscal year.

The fiscal pressure was so high that the government decided to dissolve the cabinet and bring a small size cabinet to save money. This austerity measure could produce some positive results but the way monetary expansion is taking shape, could jeopardise government