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MONEY WEEK

Hefty improvement in provincial governments' financial position

RECORDER REVIEW

Financial position of the provincial governments which used to be generally under strain has shown considerable improvement in the recent weeks. However, its strength was quite emphatic during the week ended 4th March, 2000. Deposits of provincial governments with the State Bank rose by Rs 4.8 billion during the week to probably a record level of Rs 13.4 billion. On the other hand, debtor balances, representing overdraft position of the provincial governments, decreased further by Rs 1.6 billion to only Rs 3.3 billion. Loans and advances to governments were also reduced to nil. Sharp improvement in provincial governments' position seems to be the result of major transfer of funds from the Federal government which bolstered its resources from higher tax receipts and increased borrowings from the State Bank. However, it may be mentioned that position of various provinces is not available separately from the published balance sheets of scheduled banks or the State Bank.

The government announced on Ist March, 2000 a new amnesty scheme for hidden income and assets which can be regularised by paying 10 percent tax. The scheme would be effective till 30th April and its success could have a substantial impact on future revenues of the government, budgetary borrowings from the banking system and the expansion in liquidity in the economy.

During the week ended 4th March, 2000, money supply was provisionally estimated to have gone up by Rs 6.4 billion to Rs 1,307.3 billion as against the decline of Rs 7.2 billion in the previous week. The increase emanated from the expansionary impact of the government sector. Private sector was, however, somewhat contractionary. Component-wise, both currency in circulation and deposit money contributed to the increase by Rs 3.0 billion and Rs 3.4 billion respectively.

During the year so far, money supply was estimated to have risen by Rs 25.3 billion or 1.97 percent.

Total assets/liabilities in the issue department of the State Bank went up by Rs 2.3 billion to Rs 358.8 billion. Notes in circulation, on the liabilities side, rose by Rs 2.4 billion to Rs 358.7 billion. On the assets side, while government of Pakistan securities increased by Rs 2.6 billion to Rs 249.9 billion, approved foreign exchange decreased by Rs 0.3 billion to Rs 63.2 billion. Gold coins and bullion, however, continued to remain unchanged at Rs 27.7 billion.

In the banking department of the State Bank, total assets/liabilities also increased by Rs 6.5 billion to Rs 542.5 billion. On the assets side, investment in government securities was the only item recording a major increase of Rs 11.6 billion to Rs 257.1 billion. On the other hand, items registering declines included other assets (- Rs 2.0 billion), loans and advances to scheduled banks for export sector (- Rs 1.0 billion), government debtor balances (- Rs 1.6 billion) and balances held outside Pakistan in approved foreign exchange (- Rs 0.3 billion). On the liabilities side, items recording increases were deposits of provincial governments (+ Rs 4.8 billion), banks (+ Rs 1.9 billion), and others (+ Rs 1.8 billion) and other liabilities (+ Rs 1.3 billion). Deposits of Federal government, however, declined by Rs 3.4 billion to Rs 3.5 billion during the week.

Total assets/liabilities of the scheduled banks rose by Rs 5.5 billion to Rs 1,697.6 billion. On the assets side, other assets recorded the highest increase of Rs 10.4 billion followed by balances with State Bank (+ Rs 1.1 billion), foreign currency balances with banks abroad (+ Rs 1.2 billion) and investment in central government securities (+ Rs 0.4 billion). On the other hand, investment in treasury bills, advances other than those to banks and cash in tills came down by Rs 2.6 billion, Rs 0.5 billion and Rs 0.6 billion to Rs 129.4 billion, Rs 745.2 billion and Rs 15.8 billion respectively.

Total demand and time liabilities of the scheduled banks went up by Rs 3.2 billion to Rs 1,142.0 billion. Time deposits (general) rose by Rs 3.4 billion to Rs 629.1 billion while demand deposits (general) decreased by Rs 0.6 billion to Rs 449.4 billion. Other liabilities, borrowings from banks abroad and capital (paid up) and reserves also increased by Rs 4.2 billion, Rs 0.6 billion and Rs 0.4 billion to Rs 275.7 billion, Rs 23.3 billion and Rs 81.4 billion respectively. Borrowings from State Bank, however, came down by Rs 0.6 billion to Rs 144.2 billion.

Bank credit to the private sector fell by Rs 0.6 billion to Rs 767.6 billion as compared with the contraction of Rs 1.0 billion in the preceding week. Earning assets of the scheduled banks which had fallen by Rs 0.6 billion in the last week registered a larger decline of Rs 3.0 billion due to substantial decline in the holdings of treasury bills.

Liquid foreign exchange reserves of the country came down by $ 7.7 million to $ 1527.3 million in contrast to an increase of $ 32.8 million in the preceding week. Free market rate of the rupee improved to Rs 54.22 and Rs 54.25 to a dollar for buying and selling respectively from Rs 54.33 and Rs 54.36 a week earlier due to increased supply of greenback in the market. Inter-bank floating rate (selling) and authorised dealers' exchange rate (selling) for currency notes, however, continued to remain unchanged at Rs 51.89 and Rs 52.68 per US dollar throughout the week.

Money market turned somewhat easy during the week. The call rate which was quoted at about 10.50 percent at the end of previous week declined to 7.40 - 7.75 percent by 4th March, 2000.