SBP to raise Rs5.3trln through MTBs, PIBs in May-July

KARACHI: The central bank will auction Rs5.3 trillion worth of market treasury bills and Pakistan Investment Bonds (PIBs) in May-July to help the government finance budget deficit, the central bank said on Tuesday.

The State Bank of Pakistan (SBP) would sale Rs5.150 trillion of three, six, and 12 months debt through t-bills.

The first auction of t-bills of the May-July 2018 period will be held on Wednesday.

The SBP also planned to offer Rs50 billion worth of three-, five-, 10-, and 20-year PIBs, according to tenor-wise targets of PIBs.

The fresh targets indicate that the government would continue to rely on the banking borrowing to meet its spending requirements.

Analyst Mustafa Mustansir at Taurus Securities said floating rate PIBs will enable the government to raise funds on a long-term basis and the banks to continue to benefit from the variable rate component as interest rates rise. “Non-banking sector, which accounts for 33 percent of PIB holdings in the country, may also divert funds to the bonds given the lacklustre performance of other asset classes namely equities.”

The government has already proposed a 73 percent year-on-year increase in borrowings from local banks (up to Rs1 trillion) for FY2019, in order to plug the hole created by the massive tax reliefs to individuals and corporate sector (non-banking), and the ambitious revenue collection targets.

“For banks which are flushed with liquidity at the moment, lending to the government is another risk-free avenue to yield interest income,” Mustansir said. “However, given the increasing rate scenario, banks are only interested in lending to the government on a short-term basis for example 3-months mostly, which does not work out for the government.”