KARACHI: The central bank is set to sale treasury and long-term papers worth Rs2.250 trillion in the next three months to help fund the government’s budgetary requirement deficit, it said on Wednesday.
The State Bank of Pakistan (SBP) auction calendar showed that the government planned to borrow Rs2.10 trillion through the sale of three-, six-, and 12-month market treasury bills. It would also raise Rs150 billion through the sale of three-, five-, 10-year, and 20-year of long-term Pakistan Investment Bonds (PIBs).
The government will borrow funds from the commercial banks through short- and long-term papers in December 2016 to February 2017 period The government monthly issues treasury bills and bonds to generate cash for meeting public spending requirements and to manage banking systems’ liquidity.
“The borrowing targets fixed by the government for the next three months show its persistent dependence on domestic borrowing to fund the growing budget deficit,” said an analyst. “At the same time, commercial banks have significant volume of funds to place them in the government papers.”
A huge volume of liquidity is being supplied to the interbank market by the central bank through open market operations, which commercial banks are using for onward lending to the government.
The participating pattern of banks in previous t-bills and PIBs auctions revealed that their bulk of lending was in short-term securities. However, low returns on PIBs lowered the incentive for banks to channelise funds into long-term investment.
Bank appetite for shorter-dated t-bills remained strong because they wanted to place funds in shorter tenors anticipating no cut in interest rates. Previous auctions results also showed that banks placed most funds in three-month and six-month tenors.
The government resorted to the SBP funding since the beginning of the current fiscal year. This represents a convenient arrangement for the government to avoid increase in borrowing cost, especially after the completion of an IMF programme that had placed limits on such borrowings. The government borrowed Rs1.127 trillion in July 1 to November 18 from the central bank.