The government’s plan to curb borrowing will create fiscal space for the private sector to access more bank lending. Moreover, the low inflation supports expectation for cheaper credit in the coming weeks.
The government has announced it would borrow less than Rs1 trillion — Rs825bn through short-term treasury bills and Rs150bn through long-term Pakistan Investment Bonds (PIBs) — during the January-March quarter.
The borrowing for budgetary support is so far about 40 per cent of the government borrowing during the same period last year.
A shift to short-term borrowing is significant as the government siphoned off huge liquidity, Rs1.7tr, from the banking sector through PIBs during the first 11 months of 2014.
Market experts and bankers said low inflation has also created large space for the State Bank to relax its tight monetary policy with a bigger cut in the interest rate, which could help boost economic growth.
“The country is in an ideal state as the falling oil prices have created vast opportunity to allow credit to function as a growth driver,” said a senior banker, adding that the State Bank should lower the interest rate.
Inflation was record low in November at 3.9pc, but slightly increased to 4.3pc in December.
