KARACHI: The State Bank of Pakistan (SBP) injected Rs1.47 trillion into the banking system on Friday to fill the widening liquidity gap.

The tight liquidity situation is the result of excessive investment by the banks in the government papers — Pakistan Investment Bonds (PIBs) and treasury bills (T-bills) — in every auction. The government urges domestic investors to play their due role in pushing up economic growth, but itself consumes most of the banking liquidity to bridge the fiscal gap.

A recent report of the SBP showed that banks’ combined investment in government securities rose to Rs6.039 trillion as of Jan 31, 2016 despite steep fall in the interest rates.

The government has been chasing the banks with the same speed to borrow maximum from the banks. According to another report of the central bank, the government borrowed Rs970 billion during July 1-March 4, 2015-16 period which is slightly less than Rs1.042tr it borrowed in the same period last year.

In 2015, banks collectively earned Rs199bn after-tax profit, mostly through investments in the government papers.

Though the credit off-take by the private sector increased by more than 100 per cent during the first eight months (July-February) of 2015-16, it was mostly for the working capital thus not helping the economy to move forward.

Published in Dawn, March 19th, 2016