KARACHI: The newly elected government will borrow with same intensity from the commercial banks as the previous regime did leaving the liquidity gap unchanged.

The State Bank on Monday reported that the government will raise Rs1.6 trillion in the first quarter (July-September) of 2013-14 through auction of treasury bills.

The amount would be raised to pay back the banks as the total sum of maturity of T-bills would be Rs1.594tr.

However, liquidity gap of about Rs400 billion would continue to prevail and the State Bank would have to inject cash of this amount in the banking system each week.

The previous government ran its financial affairs by this way and the new government seems to have been following the same path.

The fresh cut in the interest rate by the State Bank could not stop banks from investing in risk-free government securities. However the policy rate cut invited criticism.

The new government having no innovative or creative plan for the economy approached the International Monetary Fund (IMF) to avoid default-like situation amid falling foreign exchange reserves.

Analysts and State Bank also expect that the 2013-14 will see a rise in the inflation but the rate was reduced since the gap between main inflation and yield on treasury bills rose to 4 per cent.

It was widely criticised by the economists that the government was pampering banks through 4 per cent real interest rate. The high return on T-bills had eaten up Rs850 billion of taxpayers money in FY12 and expectedly would eat up Rs1tr in the outgoing FY13.

The latest report showed that main inflation (Consumer Price Index-CPI) for June rose to 5.85 per cent. It was a substantial increase from 5.1 per cent in May indicating that the new fiscal would see a rising inflation trend.

Bankers were found satisfied and see no change in borrowing pattern from the banking system.

They said the previous government has accumulated such a huge amount from banks that it is practically impossible for any government to pay back the entire debts with interest in few years.

The government has accumulated Rs2.36tr till end of June 2012 and it would be around Rs3.1tr by end of June 2013.

The new government has yet not come out with any plan to boost the economic growth instead more taxes were introduced to increase revenue that showed absence of any thing new in the economic policy.

A senior banker said if the government plans to increase revenue through additional taxes, it means the new government would continue to depend on bank borrowings for fiscal operations.

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Comments (3)

Faras Ali Khan
July 2, 2013 3:47 pm

Do the people of Pakistan realize that the monies/debt being acquired by the the Government is not for the people but for running a government that provides no support to the people?

The monies are used to buy things like $4.3 million watches and Gulfstream aircraft.

And yet you vote for the same thieves like Nawaz Sharif?

Muhammad Asif
July 3, 2013 10:37 am

@Faras Ali Khan:

yes, the (ill)literate masses will keep voting for them, coz they (read we) deserve it.

Dr. Anjum Siddiqui
July 4, 2013 10:53 am

No Einsteinian solutions are available to fix Pakistan's economy. However, some immediate solutions are available: drastically reduce the defence budget and reduce the expenditures on governmnet ministries. The military must be a partner in national reconstruction and accept a drastic cut in defense expenditures. It's as simple as that.

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