KARACHI: The banking system is breathing with regular liquidity injections by the State Bank of Pakistan (SBP) as it injected Rs1.027 trillion on Friday, enabling them to invest in government papers which have already sucked up Rs5.553tr from banks.

The SBP has regularly been injecting more than trillion rupees each week to keep the banks liquid while banks are investing as much as possible in risk-free government papers.

The liquidity gap has been widening due to massive government borrowing which seems to be setting new record this year. The pace of borrowing during the first two months of the fiscal year was much more than the previous fiscal year.

Another report showed that the government borrowed Rs281bn from banks during July 1 to Aug 21 of the current fiscal year. This borrowing has no match with Rs19bn borrowed during the same period of the previous fiscal year.

The previous fiscal year was laden with government borrowing from scheduled banks and witnessed a borrowing record by the government. In fiscal year 2015, the government borrowed Rs1.413tr from banks.

With rising debt-servicing and poor revenue collection, the government seems to be relying on banks’ money for its budgetary support.

The coordination between banks and government has deprived customers of loans from banks. The SBP recently asked banks not to discriminate among customers. However, it focused on politically exposed persons only.

As 83 per cent liquidity remains in government papers, the SBP continues to ignore that other sectors of economy also need liquidity to grow.

Recent auctions show that the government borrowed more than the target set for the auctions. Borrowing target for September-November is Rs1.5tr.

Published in Dawn, September 5th, 2015

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