KARACHI, May 1: Lending to government has fallen in recent months as money required for hundreds of projects has practically been stopped, said banking sources on Wednesday.

Bankers said that outflow of banking money for government has substantially reduced which has also impacted monetary expansion. Monetary expansion is higher than last year, but still not moving aggressively.

Sources in the banking industry said that the caretaker government is not issuing money for on-going projects which reduced government requirement of liquidity. It has stopped possibly more aggressive monetary expansion.

The previous government had started hundreds of projects without calculating government’s ability to feed them which resulted in huge borrowing.

Despite this borrowing, the government failed to continue these projects. The State Bank reported on Tuesday that monetary expansion was increasing at the rate of 8.8pc compared to 7.7pc during the same period last year. In terms of amount, monetary expansion rose by Rs672bn compared to Rs516bn.

Net domestic asset of the banking system shot up by Rs843bn while it grew by 761bn last year. The main reason for this growth was massive government borrowing for budgetary support.

However, bankers believe that monetary growth was not as high as it was predicted due to low revenue collection and higher government borrowing from commercial banks.

Bankers said there was a possibility that the elected government would gear up borrowing for budgetary support as well to continue some important projects. Revenue collection is short of target while the new government would be empty-handed after elections.

There can be a sudden jump in liquidity demand after elections which would surely push monetary expansion at a higher rate than the current growth. Borrowing for budgetary support during this period was still lower than last year, reaching close to Rs1tr.

Last year during this period borrowing had crossed Rs1tr mark. So far, borrowing for budgetary support rose to Rs948bn.

The difference in borrowing trend was that the government borrowing from the central bank was lower than last year while borrowing from scheduled banks was higher.

However, monetary expansion did not affect inflation since the main inflation (CPI) has been falling for the last several months and is expected to fall further in April.