KARACHI: Banks and the corporate sector invested Rs4.877 trillion in government papers during the nine months through June, showing an increase of 30 per cent over the previous figure.

The government has recently increased the treasury bill rates to 15.99pc for all tenors ranging from three to 12 months. Yields on Pakistan Investment Bonds (PIBs), as of Sept 14, were 13.92pc, 13.39pc and 12.95pc for three-, five-and 10-year papers.

The high-yielding, risk-free domestic bonds are the main source of income for banks and some corporate giants. Data recently issued by the State Bank of Pakistan showed total investments reached Rs21.084tr by June 30 from Rs16.207tr in September last year, an increase of 30pc (or Rs4.877tr).

During the October-June period, the central bank raised the interest rate by 6.5 percentage points — from 7.25pc in September to 13.75pc in May.

The treasury bill rates remain slightly higher than the policy interest rate, attracting huge sums of money, mostly from the banking sector. However, it costs heavily to the government, which has to pay back the interest through taxpayers’ money or by printing more notes, causing inflation.

During the period under review, banks invested Rs3.278tr in PIBs while the investment in treasury bills fell by Rs15 billion.

By end-June, the total investment in these papers reached Rs11.595tr, including Rs8.952tr invested by banks and Rs2.642tr by others, including corporate investments.

The total investment in market treasury bills reached Rs7.209tr by end-June. Banks’ investments in this short-term paper were Rs5.796tr while others’ investments stood at Rs1.412tr.

The investment pattern also shows that apart from banks, the corporate sector is also in the race to park its maximum liquidity in government papers — a trend that will reduce investments in the private sector and thus lead to a lower economic growth rate.

Of the total investment of over Rs21tr, the non-banking contribution stood at Rs4.199tr by end-June.

The government has already cut its economic growth rate forecast to just 2pc during the ongoing fiscal year against the budgetary target of 5pc as floods have plunged the country into crisis.

Published in Dawn, September 25th, 2022