KARACHI: The government raised Rs97.6 billion through Pakistan Investment Bonds (PIBs) on Wednesday, the State Bank said, nearly double the amount of Rs50bn target it had set for the auction.

The government plans to raise Rs150bn during the three months to December, but it raised nearly Rs100bn during the first auction.

After facing severe criticism for borrowing through high cost PIBs, the government set low targets for this paper since the beginning of this fiscal year.

However, the shortage of revenue and widening fiscal gap forced the government to borrow more through the scheduled banks, which have already invested Rs2.932 trillion in the PIBs. Most of these investments were made when the return on PIBs were in double digits.

The government raised Rs41.5bn for three-year PIBs at 7.19pc, Rs55.9bn for five years at 8.18pc and Rs517 million for 10 years at 9.22pc.

Since November 2014, the interest rate has been slashed by 350 basis points to 6pc. The yield on benchmark six-month treasury bills was 6.48pc.

Though these returns are not attractive for banks, they still like to park their liquidity into risk-free government papers.

Rather than investing money at 7.19pc in three-year PIBs, T-bills seem more attractive for banks. However, due to falling inflation the interest rate could see another cut that makes the PIBs still attractive for investors.

The borrowing trend is more aggressive this year as indicated the government’s first quarter borrowing through scheduled banks while it reportedly succeeded to get waivers from IMF for borrowing from the State Bank. During the first two-and-a-half months of this fiscal year, the government borrowed Rs383bn from scheduled banks as against Rs57bn during the same period last year that indicates the speedy growth in borrowing pattern.

Published in Dawn, October 8th , 2015

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