KARACHI: The government borrowed over Rs915 billion from banks on Wednesday, but the unscheduled treasury bill auction triggered speculation about the sudden need for this amount.

The State Bank reported that bids for the short-term T-bills for 22 days totalled Rs1,900 billion, while the government raised Rs915.6bn. This reflects both the government’s immediate needs and the surplus liquidity in banks.

However, the bankers had no clue why the government borrowed such a significant amount, which could be used to settle the payments before the end of this fiscal year.

“There is a possibility that the excess amount is required to settle the maturities of the domestic bonds before 30th June,” said a money market expert.

Borrowed money could be used for partial settlement of circular debt

The government did not disclose the purpose of raising liquidity through the auction of domestic bonds. However, recent developments suggest that the government is negotiating with banks to borrow Rs1.2 trillion to settle the power sector circular debt.

It was planned to borrow Rs1.275tr from banks as the government is willing to settle a portion of the circular debt, which has surged to Rs2.3tr.

What is strange is that this loan will be repaid over six years through a Debt Service Surcharge (DSS) included in the electricity bills.

Initially, the banks were hesitant to meet the government’s request to lend money at lower than the policy rate, but eventually, 18 commercial banks agreed to do so. The loan will be repaid over a six-year period.

“The government has been borrowing less than the maturity amount of treasury bills during FY25, which has substantially increased the outstanding amount. This new borrowing could address this accumulation,” said another banker.

Published in Dawn, June 19th, 2025