KARACHI: The government failed to raise liquidity through market treasury bills as banks invested just Rs38 billion against a target of Rs200bn on Wednesday.

The banks invested Rs38.5bn for three-month t-bills, Rs12 million for 6-month and Rs90m for 12-month papers, indicating that at the end of the financial year ‘banks preferred to remain liquid’.

The first financial year of the present government was unique in the sense that the government relied heavily on long-term costly borrowing compared to short term cheaper money.

The latest monetary indicators issued by the State Bank on Wednesday showed the government borrowed just Rs315bn for budgetary support till mid of this month.

Last year, during the same eleven and half months the total borrowing for budgetary support was Rs1,293bn which means the government borrowed just 24 per cent compared to last year.

It further reported that the government paid back debts to the commercial banks and net borrowing is negative Rs35bn till June 13. This is an entirely different scenario compared to last year.

During the same time span, the government’s borrowing from the commercial banks was Rs881bn and rose to Rs960bn at the end of the last fiscal.

The SBP report also showed that the borrowing from State Bank during eleven and half month was Rs532bn which was higher than last year’s borrowing of Rs424bn.

Fund managers said that banks are likely to remain with cash at the end of fiscal year which is also needed to keep their balance sheet in a better position.

“There is also low demand of t-bills by the mutual funds which curtailed the t-bills attraction,” said S.S. Iqbal, a fund manager. Selling of t-bills was higher in the market, he said. Market experts said the banks were either targeting long term bonds carrying high yields or shorter term papers like 3-month t-bills.

The government borrowed extremely low amount for budgetary support but it raised huge liquidity through Pakistan Investment Bonds.

Fund managers said the government raised Rs1.852 trillion through PIBs since January this year which is record high.

Most of the investment was made for 3-year PIBs of which the cut-off yield was 12.09pc, much higher than t-bills which is slightly below 10pc.

Published in Dawn, June 26th, 2014