KARACHI: The government plans to borrow Rs1.35 trillion through the banking system in the first quarter (July-Sept) of this fiscal year, continuing the trend it followed during the previous year.

The State Bank of Pakistan (SBP) reported on Friday that the government has slashed the selling of Pakistan Investment Bonds (PIBs) by limiting them to Rs200 billion during the quarter.

The PIBs had been the biggest attraction for the banks for the last two years as they invested heavily in the long-term, risk-free and high-yielding bonds.

A recent SBP report shows that banks and non-bank financial institutions (NBFIs) total PIBs investment as of May 31, 2015 stood at Rs2.9tr and Rs1.2tr, respectively. Most of the investment was made during the last two years.

The SBP’s auction calendar shows that the government will raise Rs100bn in the mid of this month and Rs50bn each in the next two months through PIBs. The government will borrow Rs1.15tr through the sale of Market Treasury Bills during the quarter.

The government has been dependent on borrowing, particularly from banks, for the last two fiscal years, and it has overburdened the economy. It failed to achieve its revenue target in 2014-15 and borrowed heavily to meet its budgetary gap.

Another report of the State Bank shows that the government’s net borrowing during the previous fiscal year (as of mid-June) reached close to Rs1tr, a considerably big amount compared to Rs327bn FY14.

However, despite heavy borrowing to keep fiscal deficit within limit allowed by the IMF and to spur economic growth, the government has failed to catch both the targets.

The borrowing plan for the July-Sept quarter also reveals that the government would continue to rely on borrowing from other sources like it did in the last two years.

Banks invested more than Rs5tr in government papers while non-bank financial institutions invested Rs1.6tr as of May 31.

Along with these domestic borrowing, the government has projected to arrange Rs896bn through foreign sources to meet its budgetary expenses of this fiscal year.

Having failed to achieve the fiscal deficit target for FY15, the government hopes to keep it at 4 per cent of GDP in FY16.

However, the first-quarter borrowing trend shows that the government would adopt the same approach as it did in the last two fiscal years.

Published in Dawn, July 4th, 2015

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