KARACHI: The State Bank of Pakistan (SBP) will auction Rs3.85 trillion worth of market treasury bills (MTBs) and Pakistan Investment Bonds (PIBs) in February-April 2019 to help plug budget hole.
The SBP planned to sale Rs3.20 trillion worth of three, six, and 12 months treasury bills, according to auction calendar issued late on Thursday. The bank will also offer s250 billion worth of three-, five-, 10- and 20-year PIBs.
Moreover, the central bank would auction Rs400 billion of 10-year floating rate PIB in various auctions. Analysts said the reliance on the SBP borrowing became more pronounced, within the banking system, since the government faced shortfalls in tax collection.
The economy is struggling from severe pressure on its public finances. The budget deficit is set to reach 6.9 percent of gross domestic product in the current fiscal year of 2019, according to International Monetary Fund estimates.
Analysts said government dependency on SBP financing increased considerably since scheduled banks’ appetite for government securities remained muted because of expectations of a further increase in interest rates.
The SBP raised its key policy rate by 25 basis points to 10.25 percent in last monetary policy announced in late January. The primary reasons for rate hike mentioned in the SBP’s monetary policy document issued last week were continuous inflationary pressures and peculiar fiscal situation.
The Consumer Price Index (CPI) based inflation rose to 7.2 percent in January 2019 from 6.2 percent in previous month. The SBP expects the projected range of inflation remains unchanged at 6.5 to 7.5 percent.
Besides, the government also borrowed extensively from the SBP to repay a large volume of its maturing debt held by the commercial banks. Government borrowing from the SBP surged to Rs4 trillion during July 1, 2018 to February 1, 2019, compared with Rs916 billion in the same period last year, the data on monetary aggregates showed.
However, the government retired Rs2.9 trillion worth of debt of commercial banks during the period under review. The government had increasingly resorted to the central bank since the end of last IMF program (in October 2016) where borrowing from SBP now stands at Rs7 trillion, up Rs5.5 trillion since FY16.
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Prime Minister personally promises to ensure that our bureaucracy does not play tricks with them