The government’s borrowing for budgetary support increased to Rs1,765.2b during the period July 1 to May 20, FY2022 as compared to Rs642.6b during the same period last year. According to the Economic Survey 2021-22 launched here on Thursday, domestic borrowing for budgetary support remained higher than last year due to pressure on the external front for high payments. Within budgetary support, the government has borrowed Rs133.5b from State Bank of Pakistan (SBP) as compared to retirement of Rs1,164.3b in the same period last year. On the other hand, the government has borrowed Rs1,453.3b from scheduled banks as compared to borrowing of Rs1,807.0b last year. As a result, government sector borrowing amounted to Rs1,795.6b against the borrowing of Rs619.7b during the same period last year. During the first nine months of FY2022, the government has financed around 62pc of the fiscal deficit from domestic sources. Within domestic sources, bank and non-bank financing share remained 66 and 34pc, respectively. The SBP had initiated to tighten monetary policy stance from September 2021 after keeping the policy rate unchanged at 7pc in all the Monetary Policy Committee (MPC) meetings held in FY2021. The monetary policy in Pakistan shifted direction in Quarter 1-FY2022 in accordance with the changing economic outlook owing to recovery in domestic demand, higher commodity prices and persistent inflationary pressures. Consequently, policy rate had increased by cumulative 275 bps to 9.75pc during consecutive three monetary policy decisions, within a span of three months. The outlook for inflation improved following the reduction in fuel prices and electricity tariffs announced by the Government’s relief package, while data also suggest a moderation in growth. As a result, MPC kept the policy rate unchanged in January and March 2022 meetings. However, the Russia-Ukraine conflict has created significant uncertainty about the outlook for international commodity prices and global financial conditions. Consequently, the outlook for inflation worsened. Accordingly, the MPC in an unscheduled meeting on April 7, 2022, raised the policy rate by 250 basis points to 12.25pc. The MPC was of the view that this action would help to safeguard external and price stability. In a monetary policy decision held on May 23, 2022 the MPC decided to raise the policy rate by 150 basis points to 13.75pc. The decision was based on the outcome of elevated external sector pressure and the higher inflation outlook due to domestic and international factors. Notwithstanding monetary policy decisions, private sector credit witnessed unprecedented expansion. On positive note, credit demand increased both for fixed investment and working capital loans. Businesses took advantage of SBP concessionary financing schemes, particularly TERF. As a result, fixed investment and working capital loans witnessed significant expansion. The expansion is a signal for both continuation and expansion of economic activities, which is evident from significant growth of 5.97pc economic growth for FY2022, surpassing the target of 4.8pc. The outbreak of COVID pandemic in 2019 has led to a global macroeconomic shock of unprecedented magnitude. The central banks responded aggressively to avoid deep recession in the economies. Short-term interest rates, which were already low in most advanced economies, quickly fell to around zero in all advanced economies, outpacing their responses to Global Financial Crisis (GFC) in terms of both speed and scope. Emerging markets also experienced sharp declines in short-term interest rates, approaching zero in several countries. The central banks supported the national government’s expansionary fiscal policy measures in the form of tax cuts and higher government spending to boost aggregate demand and employment. The GFC and the COVID-19 pandemic have shifted the focus of monetary policy, which involves significant budgetary expansion even if it requires using the money-creation capacity of the central bank. The global recovery was expected in 2021 after contraction in 2020, but the momentum slowed and fuelled by the highly transmissible Delta and Omicron variant, along with emerging price pressures, due to unusual pandemic-related developments, soaring global commodity prices and pandemic-induced supply-demand imbalances during second half of 2021. Further, the Russia-Ukraine conflict raises immediate financial stability risks and questions about the longer-term impact on markets early in the 2022. In a nutshell, the sharp rise in commodity prices combined with long-term supply disruptions, has exacerbated pre-existing inflationary pressures and shifted inflation risks to the upside. In many countries, inflation has become a central concern.