KARACHI: The government on Wednesday raised less than the targeted amount through the auction of Pakistan Investment Bonds (PIBs), even though more than 280 per cent higher amounts were offered by the banks.

PIBs were the most attractive investment for banks and corporate sector and they were willing to invest Rs270 billion in this auction. However, the government restricted the sale of PIBs to Rs94bn.

The banks are short of cash and have been breathing with the help of State Bank’s weekly injection of more than Rs1 trillion. However, they accumulated maximum liquidity to park it in the government papers, preferably in PIBs.

The government sold PIBs of three-year tenure worth Rs45.5bn with a cut-off yield of 7.35 per cent. For five-year tenure, the PIBs were sold for Rs46.6bn with a cut-off yield of 8.33pc.

The investors offered Rs162bn and Rs89bn for three- and five-year PIBs respectively.

The government accepted Rs2.5bn for 10-year PIBs which offers cut-off yield of 9.34pc.

Though the government has slowed down borrowing through PIBs but in the recent past it crossed the limits set for PIBs and treasury bills.

The State Bank reported on Wednesday that the government has borrowed heavily through scheduled banks that may set new record of borrowing for this fiscal year. It has already made record borrowing of Rs1.4tr in FY15.

In the first two months of this fiscal year the government borrowed Rs277bn compared to minus 1.4bn during the same period of last fiscal year.

It is believed in the financial sector that the PIBs were sold less than the target of Rs150bn in this auction due to upcoming monetary policy scheduled on September 12.

Since the CPI-based inflation has been going down each month, the interest rate may see a change. If a cut in the interest rate is introduced, the PIBs could also see a cut in the yield.

The government is benefiting from the low cost of borrowing but increased borrowing has already burdened the economy and the domestic debt serving is eating up major chunk of tax money.

Till the end of August 2015, the investment in government papers including PIBs, treasury bills and sukuk crossed the figure of Rs7tr.

Published in Dawn, September 10th, 2015

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