KARACHI: Increasing expenses and declining revenues have left the government with no option but to borrow from scheduled banks.

The government is set to raise Rs2.1 trillion in March-May, as it plans to borrow Rs1,950 billion and Rs150bn by auctioning treasury bills and Pakistan Investment Bonds (PIBs), respectively.

However, the government raised Rs396bn against the target of Rs350bn in the first auction of the quarter held on Wednesday. The maturing amount on March 1 was Rs347bn. This means the government raised additional Rs48bn, reflecting its need for meeting the shortage of revenue.

Despite the government’s claim about better fiscal discipline, the gap between revenues and expenses has been increasing and can be around 4.5-5 per cent of GDP by the end of 2016-17.

Pakistan’s fiscal deficit was 2.4pc of GDP in the first six months of this fiscal year. Persistent revenue shortfalls and growing expenses are reflected in higher borrowing and a rising fiscal gap, which was at a four-year high during the six-month period.

Auction results indicate banks were eager to invest in treasury bills as they placed bids worth Rs483bn. Banks have been investing in treasury bills more than they invested last year despite extending higher advances to the private sector.

During the current fiscal year, the government has relied heavily on printing money as it borrowed more than Rs1 trillion through the State Bank of Pakistan (SBP). But the government has resorted to heavy borrowing from commercial banks in the second half of 2016-17.

Low returns on securities have slashed profits of banks. The banking industry registered 1pc increase in profits in 2016. Even the nominal increase in annual profits was more than what banking experts and analysts expected.

The sharp fall in the returns of PIBs suppressed banks’ earnings, but they are still looking for risk-free investments.

Researchers believe the government’s revenue collection will miss the target for 2016-17 while the SBP has already said that achieving the annual fiscal deficit target is going to be difficult.

Published in Dawn, March 2nd, 2017