KARACHI, Feb 4: The government’s borrowing set new trend in the first seven months (July-January) of this fiscal year leaving the private sector far behind signifying slump in the economy.

Credit supply to private sector was down by 33 per cent at Rs173 billion while the government’s net borrowings surged to Rs269 billion during the period under review, which was also higher than the corresponding period of last year.

The sharp fall in private sector’s borrowing is almost equal to the decline in Gross Domestic Product (GDP) for 2008-09. The new monetary policy paper said GDP growth will remain around 3.7 per cent against the last year’s growth rate of 5.8 per cent. This is a decline of 36 per cent.

“This relation of credit supply and GDP growth rate is a sign that economic slump is knocking at the doors,” said Abid Saleem, a research analyst. The full impact of the slump would be felt by the end of the current fiscal year, he added.

Analysts were found calculating the real impact during the current calendar which has been declared as the worst year for the global economy by the International Monetary Fund (IMF).

The government said it had met the targets it assured to the IMF for $7.6 billion stand-by loan facility. Fiscal deficit was up to-the-mark but having massively cut down the development plan, which has added fuel to the rising unemployment.

“The massive job losses in textile and auto sectors will lessen the consumption level ultimately hitting the overall economic growth,” said Abid.

The State Bank of Pakistan data showed that credit to public sector touched record level at Rs59 billion during the July-January period compared to just Rs6 billion in the corresponding period of last fiscal year.

Analysts said it was a bad sign that the public sector entities were being run on borrowed money despite that fact that major utility companies like Wapda had been receiving Rs30 to Rs40 billion in annual subsidies.

They said the debt of public sector was rising because the government was trying to do away with subsidy under the condition of the agreement with the IMF.

At the same time, the manufacturing sector had been raising voice against the high interest rates and holding it responsible for the lower credit off-take. The mounting pressure forced the government not to increase interest rate further which was due at the end of January.

It was announced in November that interest rate would be increased by 1.5 per cent in January if the core inflation did not come down. The core inflation was still 18.8 per cent in December, slightly less than 18.9 per cent in November. However, the higher cost of production started hitting the export sector making the exportable items uncompetitive on the western markets where the interest rate is prevailing at 0.25 per cent to 3 per cent.

While the local trade and industry is demanding a cut of 2.5 to 3 per cent in the interest rates.