KARACHI, March 4: The annual target of monetary expansion has been revised upward to 14.5 per cent from 11.3 per cent owing to expansion in credit to the private sector and higher government budgetary borrowings during first half of current fiscal.

The original credit plan, which had envisaged monetary expansion at 11.3 per cent based on the GDP growth target of 6.6 per cent and inflation target of 5 per cent set for FY05 now seems to be unrealistic in front of higher credit demand from private sector, which stood at Rs285 billion during July-December 2004 against the full year indicative target of Rs200 billion.

Consequently the actual monetary growth by the end of the year is expected to exceed the targeted monetary growth due to more than expected expansion in credit to the private sector and higher government budgetary borrowings resulting from shortfall from non-bank borrowings. Therefore, he said it has become absolutely necessary to revise some of the credit plan targets to remain consistent with the GDP growth and inflation which are now expected to exceed their respective annual targets and reach the level of 7 per cent by the end of the current fiscal year.

This was disclosed by the Economic Adviser of the State Bank (SBP) during the mid-year review meeting of the National Credit Consultative Council (NCCC) held recently and was chaired by Dr Ishrat Husain, the governor SBP.

While reviewing the monetary and credit developments during the first six months of the current fiscal year Dr Ishrat Husain expressed satisfaction over the performance of private sector in terms of its substantial credit consumption despite rising nominal interest rates.

The governor was particularly impressed by the banks' credit disbursement in the agriculture sector. He revealed that credit disbursement target of Rs100 billion would be achieved by the end of June 2005, which has been set for them to attain by the end of 2006. He further indicated that small banks showed more dynamism compared to other banks like ZTBL and PPCB.

Dr Ishrat Husain informed the NCCC members that expansion in credit to the private sector by Rs285 billion had been quite high and broad-based as it had led to expansion of almost all industries. He said that the manufacturing sector received 52 per cent of the total credit while commerce, transport and communication, and services sector got 26 per cent.

Within manufacturing sector, he said, all important sub-sectors were the beneficiaries, particularly the textile sector. Moreover, a significant growth in consumer financing, including auto-finance and housing was observed.

He said that it was imperative to encourage all these sectors as the benefits of credit given to these sectors directly go to the middle-class of the society which has been deprived of access to bank credit for long in the past.

He explained that these sectors by virtue of their strong linkages with employment and other domestic sectors would be instrumental for maintaining the current growth momentum, besides enabling the economy to surpass the current-year economic growth target of 6.6 per cent.

Two principal factors that have prompted this revision in monetary expansion are the credit to the private sector and government budgetary borrowings, which have been revised upward to Rs350 billion and Rs60 billion in view of substantial credit demand by the private sector and shortfall in government's non-bank borrowings, respectively, observed the economic adviser of the SBP.

He further said that other items of the banking system are also expected to contract to Rs65 billion. Therefore, net domestic assets of the banking system are expected to build up to Rs330 billion. He mentioned that there were no compelling reasons to revise the annual target of the net foreign assets of the entire banking system.