KARACHI: The government will borrow Rs1.9 trillion from banks in the first quarter of the new calendar year mostly to meet domestic debt repayments.

The State Bank on Friday issued the targets set to be borrowed through the Pakistan Investment Bonds (PIBs), treasury bills (T-bills) and Ijara sukuk (Islamic bonds) during this quarter which happens to be the third quarter of financial year FY-16.

The repayment or maturity amount is so huge that the government is bound to borrow more from the same banking system. At the same time, the government has also been borrowing to meet the fiscal gap.

Rs1,6tr will be borrowed through T-bills auction during Jan-March, 2016

Details show that the largest amount of Rs1,600 billion will be borrowed through T-bills auction during Jan-March, 2016. The maturity amount of T-bills is Rs1,509bn which means the government will borrow an additional Rs90.8bn in the quarter.

Stock of banks’ investment in the T-bills was Rs2.6tr till the end of November 2015. Non-banks also invested Rs290bn to make the total investment in the T-bills as Rs2.92tr.

However, the banks have invested the highest amount in PIBs which collectively rose to Rs4.36tr at the end of November.

The government shifted its strategy by not borrowing through PIBs on large scale in the new fiscal FY-16, with the result that the size of borrowing was visibly slashed.

In the quarter Jan-March, the government will borrow Rs200bn through PIBs while the maturity amount will be Rs239bn. It means the government will make Rs39bn payments of PIBs through borrowing from T-bills.

Islamic banks were also provided a chance to invest in government papers. The government will borrow Rs100bn through Islamic bonds during the same quarter.

In a recent meeting held in Karachi, Minister of Finance Ishaq Dar criticised Islamic banks for not doing a better job and relying on the government for helping them through the issuance of sukuk.

The government’s borrowing from the banking system has been making new records. During July to mid December Rs641bn were borrowed through banks, reflecting both the fiscal gap and low revenue generations.

This massive outflow of Rs1.9tr from the banking system during Jan-March will not allow banks to make advances for the private sector which showed some positive signs during the last couple of months.

Private sector credit off-take rose to Rs168bn during five and a half months of the current fiscal FY-16 compared to Rs127bn in the same period of last fiscal.

Another report of the State Bank showed that they improved their deposits and added Rs699bn during the 11 months of calendar year 2015 while they invested Rs1,204bn in the government papers during the same period. It shows both the government and banks were not ready to invest in the economy.

Published in Dawn, January 2nd, 2016