KARACHI: The government raised Rs535 billion from banks on Wednesday to bridge the widening fiscal gap and retire past debts.
Banks had shown eagerness to invest double the amount eventually raised by the government. This indicates banks still find government papers attractive despite a drastic cut in their yields.
Banks were keen to invest in the benchmark six-month treasury bills, reflecting that they don’t expect a change in the interest rate in the near future.
Banks’ bids for t-bills were Rs1,071bn, out of which the government raised Rs535.5bn. Banks were willing to invest Rs629bn in the six-month t-bills, showing their confidence as far as the long-term interest rate scenario is concerned.
The government raised Rs274bn, Rs150bn and Rs111bn through six-month, three-month and 12-month papers, respectively.
Another report released by the State Bank of Pakistan (SBP) shows the government is still retiring the debt of commercial banks although half of the current fiscal year has passed. Most of the funds being raised through t-bills and other government papers are used to retire past debts.
The SBP report shows that the government’s credit off-take from private banks was negative Rs312bn during the first six months of 2016-17. In contrast, government borrowing from banks amounted to Rs670.5bn during the same period of the preceding fiscal year.
The government is taking full advantage of the IMF’s non-involvement in the economy as there is no restriction on borrowing from the central bank. Government borrowing from the SBP from July 2016 to January 6, 2017 amounted to Rs841bn.
Government borrowing for budgetary support in July-Dec was double the amount borrowed in the first half of the preceding fiscal year. It borrowed Rs480bn in the last six months compared to Rs242bn a year ago.
In the first quarter of 2016-17, the fiscal deficit breached its target by clocking up at 1.3pc of GDP. In rupee terms, the deficit was Rs438bn compared to Rs328bn, or 1.1pc of GDP, in the same period of the last fiscal year. Figures for the second quarter have not been issued yet.
The government can face a deficit of over 5pc against the target of 3.8pc for 2016-17 in case the first-quarter deficit trend persists.
The borrowing trend shows the fiscal gap will be higher than the target while the shortfall in tax revenues can aggravate the situation further. The decline in remittances and no improvement in the tax-to-GDP ratio can force the government to accept a larger-than-targeted fiscal deficit.
The cut-off yield on the t-bills of all three maturity periods remained unchanged. In their reports, analysts have shown a consensus about no change in the interest rate as inflation is increasing slowly.
Published in Dawn, January 19th, 2017
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