The government succeeded in raising Rs705 billion through an auction of market treasury bills despite Rs1.195 trillion bids offered mostly by banks on Wednesday.
The banks having surplus liquid cash took part in bidding that showed their willingness to invest in the government bills. The government was close to its target of Rs750 billion but the accepted amount was much higher than the maturing amount of Rs630 billion.
The revenue shortfall during the first 10 months of the current fiscal was estimated at Rs381 billion. Despite that, the cash-starved government borrowed around Rs3 trillion from commercial banks.
According to economists bank deposits increased as private sector abstained from taking loans at an exorbitant interest rate. The State Bank’s policy rate is 21pc but the clients could get money at much higher rates from banks.
The bank advances to the private sector dropped by 81 percent during the current fiscal year indicating the poor health of economy. The IMF and WB has already reduced GDP growth to 0.5pc this fiscal.
On the other hand, bankers claimed there were two obvious reasons for this extremely low lending to the private sector – unprecedented inflation of 36pc and banks unwillingness to lend money amid a highly uncertain economic and political situation in the country.
This prolonged uncertainty devalued the local currency by 54pc in a year and the bankers said the high inflation with continued devaluation has left no option for the banks but to invest in the risk-free government papers.
The government borrowed the money at almost 22pc on Wednesday. This costly money would overload the government with debts and the domestic debt servicing would get the major share in the next budget.
At the same, the uncertainty about interest rates is still there in the financial sector. The increasing inflation could further push the State Bank to jack up its policy rate and this was the reason why the banks invest the highest amount in three-month papers.
The government accepted the highest amount of Rs613.2bn for 3-month papers at 21.99pc against the bids of Rs892bn.
The government raised Rs3.75bn and Rs39.3bn for six- and 12-month papers at 21.96pc and 21.97pc, respectively.
The government also raised Rs49.3bn through non-competitive bids making the total Rs705bn.
The government raised Rs40bn for 5 years through Pakistan Investment Bonds (PIBs) and Rs52.7bn for three- and two-year PIBs collectively.
