KARACHI: The government intends to borrow over Rs1.5 trillion between August and October, and most of the money would be borrowed through banking system.

The State Bank issued the auction calendar of Pakistan Investment Bonds (PIBs) and Market Treasury Bills on Tuesday. An amount of Rs1.425tr will be borrowed through T-bills auction. In addition to Rs1.207tr maturity amount of the T-bills, the government plans to borrow Rs217 billion from PIBs.

The government has reduced reliance on PIBs and now T-bills are being used for borrowing. The shift occurred during the last three months since growth in domestic debt servicing increased by 13.3pc mainly because of high-yield PIBs.

The recent fall in interest rates reduced the return on PIBs, thus these bonds were no more attractive for banks. The coupon rate on three-year PIBs was cut to 8.75pc. For five-year PIBs, the rate fell to 9.25pc and for 10-year, the rate fell to 9.75pc.

The government will borrow Rs150bn through PIBs in the next three months. Their maturity amount is about Rs50.8bn which means that the government will borrow an additional Rs99bn.

Most of the investment in government papers is being made by banks, which was not allowing the private sector to benefit from the banking money. This was evident from the fact that despite 300 basis cut in the interest rate during FY 15, the private sector credit off-take fell further, compared to the previous year.

Although, the government decided to keep the fiscal deficit around 4pc of GDP in this fiscal year, borrowing in the beginning of the fiscal year shows the task would be difficult as fiscal gap in the fiscal year could not be curtailed.

Published in Dawn, August 5th, 2015

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