KARACHI - The net borrowings of the federal government have soared to 324 billion rupees during July-February FY09 as against 249 billion rupees during the same period of last fiscal year FY08. The budgetary and inflationary related borrowings of the government increased to 311 billion rupees from July to February despite slowdown in the rate of CPI inflation. However, the stock of government borrowings from the SBP has declined by 30 billion rupees during Jul-Feb FY09. From July 01, 2008, to February 07, the total borrowings of the federal government saw an increase of 75 billion rupees as against such borrowings from the same period of last fiscal. In last financial year, the budgetary borrowings of the centre amounted to 249 billion rupees. The government borrowed Rs 308 billion from the SBP for budgetary support during July-February FY09 as against Rs338 billion in last fiscal while the aggregate M2 growth dipped by 1.48 per cent. This development has showed that the government should continue to keep borrowings from the SBP under control and ensure the build up of reserves. The growth in private sector credit off-take by the schedule banks had steeply dropped by 46.76 percent during July-Feb FY09 due to slowdown in the demand of working capital loans and fixed investments from the corporate sector. The private sector credit disbursement from the scheduled banks declined by 123 billion rupees from July 2008 to February 2009, depicting a strong contraction in credit demand from the corporate and industrial borrowers on account of deceleration in the share of trade financing in private sector advances of the banking sector. The domestic banks disbursed Rs 140 billion from July 01, 2008 to February 07, 2009 as against Rs 263 billion of last fiscal. However, credit to public sectors enterprises (PSEs) sharply increased by 38 million rupees during Jul-Feb FY09 as continuing delays in settlement of claims by the government 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 Rs 59.116 million during July-Feb FY09 as against Rs 21.610 million during the corresponding period of last year. According to SBP monetary aggregates for the reviewed period of July-February 2008-09, net foreign assets (NFAs)of banking system showed negative growth, whereby, NFAs amounted to Rs-280 billion as compared to Rs-196 billion. On the other hand, Net Domestic Assets (NDAs) stood at Rs 349 billion during the period under review from Rs 447 billion in FY08; witnessing sharp deceleration in NDA growth of the banking system. A careful analysis of monetary aggregates also expose the consequences of a widening saving-investment (or aggregate demand-aggregate supply) gap. 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. These steps are expected to induce discipline in macroeconomic management and have already instilled confidence in the system; both the rate of decrease in Net Foreign Assets (NFA) and the rate of increase in government borrowings from the SBP have been dampened.