KARACHI - The governments budgetary borrowing from banking system during the financial year 2009-10 rose by Rs331 billion compared to Rs317 billion in FY2008-09, depicting a surge of Rs14 billion or 4.22 per cent over the entire period of FY09. Despite this increase, the size of total banks financing to the Centre and provincial governments to fulfil their budget related requirements ranging from financing of fiscal deficit to commodity operations, substantially fell by Rs119 to Rs407 during FY10 from Rs526b in FY09. The official data released by SBP on monetary aggregates for FY10, including the components and the factors affecting M2 growth showed that as on June 30 2010, the growth in such borrowings from the central bank declined by 65.64 per cent to Rs45 billion, sharply lower when compared with a rise of Rs131 billion in FY09. Within the banking system, the share of budgetary financing of the scheduled banks to the government sector soared by Rs101b to Rs287 billion by end-June FY10, compared with Rs186 billion during FY2008-09. The government continued to pursue its policy of heavily relying on the banking system for the meeting of higher budgeted public expenditure without any pause in FY10. This was primarily due to rising inflationary pressures, contraction in financial account balance and lower than expected shortfall in the receipts of tax revenue and the income mobilised through NSS instruments during the whole period of past fiscal year. According to SBP figures, the government borrowed Rs77 billion from the domestic banking sources for commodity operations, which seems lesser when compared to an amount of Rs211 billion in FY09. The credit to non-government sector soared to Rs199b as against of Rs171b in FY09. Surprisingly, the disbursement of credit towards the private sector by the banks registered a robust growth of 84pc in the preceding financial year. Credit to the private corporations during the year under review expanded to Rs113b as against of Rs18b amid high demand of working capital and fixed investment loans by the industries. Notwithstanding, the borrowing of the public sector to carry out and upgrade their industrial operations showed sluggish trend as fell to Rs86 billion from Rs153b in 2008-09. Contrary to the predictions of financial experts, the growth in broad money (M2) aggregates dropped to 12.64 per cent, lower when compared to a pace of 9.56 percent recorded in FY09 but the experts had projected that the M2 growth would be around 15 per cent in FY10. The outstanding stock of net foreign assets (NFA) held by SBP and scheduled banks of official grants improved to Rs153b but the external account is still facing some pressure due to lower than expected financial inflows and retirement of such loans in the period of analysis. However, the stocks of NDA was decreased to Rs331 billion versus Rs526 billion due to fall in government borrowing and some rebound in the retirement under commodity finance.