KARACHI: The government surpassed its target in Wednesday’s treasury bill auction, raising Rs515.2bn, with banks offering more than three times the targeted amount.

However, despite the oversubscription, the cut-off yields remained largely unchanged, with a slight reduction of 14bps for one-month papers, bringing the yield down from 10.89pc to 10.75pc.

The government raised Rs402.7bn through the direct auction, while an additional Rs112.5bn was secured via uncompetitive bids. The original target for the auction was Rs400bn, but the strong demand from banks and the corporate sector, driven by excess liquidity, pushed the total raised amount well beyond the target. Bids for the treasury bills amounted to Rs1.477 trillion, reflecting the abundance of liquidity within the banking system.

However, this also highlighted the fact that banks are holding substantial funds without lending to the private sector, despite the low interest rate of 11pc.

Despite excess liquidity, slow credit flow to private sector raises concerns

The lack of private sector borrowing is a point of concern. While the government insists that the economy is on the right track, industries, particularly the textile sector, have been vocal in requesting urgent assistance to lower the cost of doing business. This lack of credit flow to trade and industry suggests that the low interest rates and recent decline in inflation to 3.2pc in August have not been enough to stimulate private sector investment.

Analysts have pointed to the uncertainty surrounding Pakistan’s political situation as a key reason for the hesitation among investors. Moreover, banks remain cautious, mainly due to the government’s status as the largest borrower in the country.

Experts have noted that the full extent of economic damage from the recent floods will only become clear once the situation stabilises. The floods are expected to significantly increase government spending, particularly on relief efforts, while revenue collection may fall short of targets.

Bankers anticipate that the government’s increased spending due to flood relief efforts will further strain fiscal resources, and the damage caused by the floods could impact the economy for the foreseeable future. The government has already announced plans to borrow Rs4 trillion through domestic bonds between September and November this year, underlining the urgent need for funds to manage flood-related expenditures.

Published in Dawn, September 4th, 2025