KARACHI: The government has planned to borrow Rs1.5 trillion through bonds and treasury bills in the next three months while the borrowing for budgetary support during July-Feb 2014-15 reached near Rs1tr.

The State Bank of Pakistan (SBP) reported on Tuesday that the government has decided to raise Rs1.357tr through auction of treasury bills from March to May this year. Another Rs150 billion would be raised through auction of Pakistan Investment Bonds (PIBs) during the same period.

Despite a large cut in the public sector development funds, the government finds it hard to manage the fiscal affairs as per its own plan. The shortage of revenue growth has forced the government to keep relying on borrowing.

The SBP issued a report on Tuesday that showed the government has borrowed Rs959bn through scheduled banks so far during this fiscal year. This huge borrowing practically pushed out the private sector from banking system.

The size of borrowing was much bigger than the borrowing of Rs171bn from scheduled banks during entire FY14. However, the government borrowed Rs960bn in FY13.

This year the government reached the figure of Rs959bn in just eight months which reflects the poor health of fiscal affairs. The massive borrowing from the banking system is being made at the cost of the private sector, which has failed to borrow from the banks despite massive cut of 1.5 per cent in the interest rate during the last four months.

The private sector borrowed just Rs140bn during July-Feb, well below Rs280bn during the same period a year earlier.

The government’s plan to borrow another Rs1.5tr in the next three months would certainly deprive the private sector of the benefits of the cheaper money. Though the government has decided to borrow just Rs150bn in the next three months from the PIBs, it has usually crossed the targets in the previous auctions.

The banks alone invested Rs2.715tr in the PIBs till the end of January 2015 which reflects their appetite for the long-term, risk-free and high-yield bonds.

In the wake of low economic growth and low revenue generation, it is believed that the fiscal gap would require more money and the government could set higher targets for borrowing from the banking sector.

Published in Dawn March 4th , 2015

On a mobile phone? Get the Dawn Mobile App: Apple Store | Google Play