KARACHI - The growth in private sector credit off-take by the schedule banks has declined by 33 per cent during Jul-Jan FY09. The private sector credit disbursement from the scheduled banks has declined by 84 billion rupees from July 2008 to January, 2009. From July 1, 2008 to January 17, 2009, the domestic banks have disbursed Rs172 billion as against Rs256 billion of last fiscal. This sharp fall is in line with banks' reluctance to extend credit to the private sector due to their increased participation in the process of treasury bills auctioning and slowdown in economic activity. Also the banks became constrained and more risk averse in extending credit owing to the rising Non Performing Loans (NPLs). However, credit to public sectors enterprises (PSEs) sharply increased by 53 million rupees during Jul-Jan FY09 as continuing delays in settlement of claims by the government has pushed the major power utility and the oil marketing company in public sector to seek finance from scheduled banks. The credit expansion by the banks to the PSEs surged to Rs59.135 million as against Rs5.988 million during the corresponding period of last year. According to SBP monetary aggregates for the reviewed period of July-January FY09, the net federal government's borrowings soared to Rs268 billion as against Rs210 billion in the same period of FY08 while the aggregate M2 growth dipped by 1.21 per cent over 5.58 per cent of previous fiscal. The budgetary-related borrowings of the federal government have increased to 263 billion rupees from July to January of current financial year. The government borrowed Rs270 billion from the SBP for budgetary support during Jul-Jan FY09 as against Rs237 billion in last fiscal. According to the monetary survey from July, 2008 to January 2009, Net Foreign Assets of banking system showed negative growth whereby NFA amounted to Rs302 billion compared to Rs162 billion last year. On the other hand, Net Domestic Assets stood at Rs359 billion during the period under review from Rs400 billion in FY08. Earlier, a critical study on monetary aggregate, conducted by SBP, found that the depreciation of rupee was mainly reflecting a sharp fall in the NFA component of money supply (M2). Similarly, stubbornness of inflation was partially because of a significant expansion in the NDA, driven largely by government borrowings from the SBP. Recent data reveals that the rate of increase of government borrowing from the SBP (and thus the NDA) has slowed down and the foreign exchange reserves (and thus the NFA) have improved. This offers a glimpse of a certain degree of stability to come by the end of FY09. However, in absolute terms, an expansion in NDA (Rs360 billion) and contraction in NFA (Rs303 billion) during 1st July - 17th January FY09) still represents a disproportionate increase in rupee liquidity relative to the availability of foreign exchange.