Centre borrows over Rs1trn from banking sector
RIZWAN BHATTI
KARACHI: The federal government Wednesday borrowed over Rs 1 trillion from banking sector through the sale of short-term bonds to meet its financial needs. As the recently independent Monetary Policy Committee has increased the policy rate by 50 basis points to 6.50 percent for next two months, banks aggressively participated in the auction for government of Pakistan Market Treasury Bills (MTBs).
Bankers said that slow foreign inflows and rising expenditures have compelled the government to enhance its reliance on domestic banking system to meet its financial requirements.
The State Bank of Pakistan (SBP) conducted the auction for MTBs on June 6, 2018 for the sale of 3-month, 6-month and 12-month bills. Overall, the SBP received bids amounting to Rs 1.41 trillion with a realized value of Rs 1.388 trillion.
Most of the bids were received for 3-month period as banks and other financial institutions are expecting further changes in policy rate in coming months and reluctant to invest in long-term papers. The received bids included Rs 1.402 trillion for 3-month and Rs 7.25 billion for 6-month, however no bid was submitted for 12-month papers.
The federal government accepted bids amounting to Rs 1.311 trillion or Rs 1.291 trillion realized value. The borrowed amount is much higher than the actual target of Rs 300 billion set for this auction by the federal government.Following the surge in key policy rate, cut-off yield of 3-month MTBs increased by 50 basis points to 6.7596 percent up from 6.2591. An amount of Rs 1.311 trillion (Rs 1.291 trillion realized amount) was raised through the sale of three months T-bills. For the 6-month, bids worth Rs 1.5 billion (Rs 1.45 billion realized) were accepted at a cut-off yield of 6.8545 percent.
In order to meet rising fiscal deficit; the federal government has also planned to borrow a record amount of Rs 4.6 trillion from banking sector during three months, ie, June-Aug 2018.
The State Bank has issued two calendars for the sale of Pakistan Investment Bond (PIBs) and Market Treasury Bills. According to these calendars, the federal government has planned to borrow a tentative amount of Rs 4.6 trillion form banking sector during June, July and August 2018. According to the SBP, the federal government is intending to borrow Rs 150 billion through the sale of fixed rate PIBs and an amount of Rs 150 billion will be raised through floating rate PIBs.
In addition, the government has planned to borrow Rs 4.3 trillion from banking sector through the sale of 3-month, 6-month & 12-month MTBs in next three months. The auction for MTBs will be held fortnightly and total 7 auctions have been announced by the State Bank. The targeted amount includes Rs 4.064 trillion of maturing amount and an additional amount of Rs 235.33 billion.
