KARACHI: The government will borrow Rs3.75 trillion from the banking system in August-October, the State Bank of Pakistan (SBP) reported on Wednesday.

The government will borrow Rs3.45tr through market treasury bills (MTBs) and Rs300 billion through Pakistan Investment Bonds (PIBs) in the three-month period.

The government, which depends largely on domestic and foreign borrowing, will raise Rs304.6bn in addition to the maturing amount of about Rs3.39tr during this period.

The government has been borrowing heavily from the banking system for the last four years. This has put enormous pressure on banks’ liquidity.

The government changed its strategy in 2016-17 and started borrowing from the central bank, leaving the liquidity of scheduled banks for the private sector. Resultantly, the private sector borrowed Rs748bn from banks.

However, the growing need for revenue in the final year of the government can turn its attention towards scheduled banks again.

The government depends on indirect taxes and borrowing from the banking system as it failed to increase direct taxes or improve the tax-to-GDP ratio.

The government is going to need heavy funds to finish important projects in the election year. Despite heavy borrowing from the central bank in 2016-17, the government borrowed Rs361bn from scheduled banks.

However, it was still less than Rs1.36tr borrowed in 2015-16.

The government started borrowing from scheduled banks in the last quarter of 2016-17.

The government has not been borrowing through long-term PIBs for the last couple of years. It will borrow Rs300bn through PIBs in August-October while the maturing amount is about Rs116.4bn. This means the government will raise additional Rs183.6bn over the three-month period.

The government raised Rs722bn through MTBs on Wednesday.

The biggest chunk was raised through three-month papers, reflecting the cautious approach of banks.

The government raised Rs575bn for three-month, Rs133bn for six-month and Rs17bn for 12-month papers.

Although inflation was relatively low in July, the market expects the consumer price index to go up in coming months.

Published in Dawn, August 3rd, 2017