KARACHI: The cash-starved PMLN-led coalition government on Tuesday borrowed Rs655 billion exceeding the Rs300bn auction target for the treasury bills by 118 per cent without making any upward revision in the cut-off yields.
The State Bank of Pakistan (SBP) reported that the entire amount was raised for a three-month tenor at 16.99 per cent while the bids for six- and 12-month bills were rejected.
The total bids received were Rs845bn indicating that banks were keen to park their maximum liquidity in risk-free high-return government papers.
The government is facing serious liquidity problems to finance ongoing and new development projects.
The latest data released by the SBP showed that the government had been borrowing heavily as it raised Rs1,146.8 billion during the first five and half months of the current fiscal year against net debt retirement of Rs199bn in the same period of last year. The overall development spending of the government dropped 38pc to Rs130.64bn in July-November 2022-23 from Rs209.53bn a year ago to create a cushion for rising current expenditures.
The government is struggling to broaden the tax base to increase collection without imposing new taxes in a bid to avert further damage to its political image. The coalition setup has already lost popularity due to unprecedented inflation and persistent economic instability hampering industrial production causing massive job losses.
Trade and industry leaders have been asking the government to take urgent steps to end this economic uncertainty to save millions of jobs that are in danger due to wrong policies which have shaken investor confidence.
Rupee falls against US dollar
The US dollar continued its appreciation against the local currency as it gained 51 paise in the interbank on Tuesday.
The State Bank of Pakistan’s (SBP) efforts to check the greenback rise look to have failed and proved costly, too, since the artificially maintained interbank dollar rate has started diverting remittances towards channels offering more money than the banks.
According to SBP, the closing price of dollar was Rs226.94 compared to Rs226.43 on Monday — a difference of 51-paisa in a single session.
Currency experts said there was no reason for the rupee to stabilise since both foreign investment and foreign exchange reserves have been on the decline since the beginning of this fiscal year.
The central bank will have to arrange $1bn for debt servicing this week. The market behaves with information about the inflows or outflows of foreign exchange.
Currency dealers believe the local currency would see more depreciation with the outflow of $1bn.
They said the inflow of remittances had fallen further in December and it could be less than $2bn.
The central bank has yet to issue the December data, but the previous trend shows that remittances have been declining every month. There is a valid reason for the decline in remittances as overseas Pakistanis have started remitting their hard-earned money through other banking channels so that they get an additional Rs25 to Rs30 for every dollar.
Published in Dawn, january 4th, 2023
