KARACHI - Total borrowings of the Federal government have increased by Rs 64 billion during July-August 2009. From July 01 to August 08, 2009 the government borrowed Rs156.3 billion from the banking sector for financing its inflationary, budgetary and commodity related operations. In the period July-August 2008, the centers borrowings amounted to Rs 92.3 billion. The SBP break-up on monetary aggregates for the period ended on August 08, 2009 revealed that the governments borrowings for budgetary support stood at Rs 157.3 billion during 39 days of current fiscal year 2009-10, witnessing an increase of Rs 64.4 billion as against of Rs110.9 of the same period of previous year. The government borrowed Rs102.9 billion from the State Bank as on August 8, 2009 versus Rs79.9 billion during July-August FY09 while these borrowings from scheduled banks reached the level of Rs 54.4 billion during July-August F10. In incremental terms, governments such borrowings from the central bank and commercial banks swelled by Rs 23 billion and Rs 24 billion respectively during the period under review. Similarly, scheduled banks lent Rs 1.57 billion to the federal government from July 01 to August 08, 2009 from Rs18.9 billion recorded during the equivalent months of last financial year. According to SBP data, credit to the private sector continued to fall as it dropped to Rs -66.9 billion from Rs -54.9 billion negative of last fiscal year. However, credit to Public Sector Enterprises (PSEs) witnessed Rs -12.4 billion negative growth during analytical period of prevailing financial year as against Rs 10.3 billion of the same months of last year. The money supply growth was slashed by 1.47 per cent in July-August F10 versus 2.29 per cent of the corresponding months of last financial year. Net Foreign Assets (NFA) of the banking system amounted to Rs 39.526 billion in July-August FY10 while Net Domestic Assets (NDA) stood at Rs 36 billion during the same period of ongoing fiscal year. It is important to note that SBP in a recent monetary policy statement claimed that government borrowing from the central bank remains within quarterly limits set by the Ministry of Finance. The ability of the government to control its borrowings from the SBP in cumulative terms and to raise their targeted amounts in T-bill auctions is another mark of success of the stabilisation programme. Though there has been a slight up-tick in the last two auctions, yields on government paper of different tenors have broadly followed a falling trend despite the increased borrowing requirements from banks. This reflects actual retrenchment of the fiscal deficit and transparency in the conduct of borrowing operations from the banking system. At the same time, it reflects sharp contraction in credit to the private sector, and includes the expectation of further decline in market interest rates amidst decreasing inflation. Although the final consolidated fiscal deficit during first three quarters of FY09 remained within target, higher expenditures related to IDPs and provincial spending in the fourth quarter of FY09 resulted in possible infraction of the deficit. Despite slippages from the budget estimates, the fiscal deficit for FY09 is expected to be well below the 7.6 percent deficit of the previous year. Money supply grew by 9.6 percent. The equilibrium projected money growth for FY10, consistent with projections for the external account and the federal budget announced, is 13 percent versus 15.4 percent for 08 and 19.3 percent in 07. SBP met successfully, the three main end-June IMF performance criteria. Both the stock of budgetary borrowings from the SBP at Rs1130 billion and Net Domestic Assets (NDA) of SBP at Rs1183 billion were below their respective target ceilings of Rs1181b and Rs1321b. Similarly, the Net Foreign Assets (NFA) of SBP at $3.98b were higher than the targeted floor of $2.37 billion.