KARACHI: The government will borrow Rs750 billion from the banking system in the first quarter of this fiscal year, while another Rs50 billion will be raised through auction of Pakistan Investment Bonds (PIBs).

The State Bank of Pakistan on Friday issued the detail of borrowing through auctions of treasury bills for the first quarter of 2011-12 (July-September), showing no steps to reduce the government borrowing from the banking system.

The massive government borrowings from the scheduled banks in the outgoing fiscal year had attracted severe criticism from economists, analysts and the State Bank itself.

Six auctions of treasury bills of all three maturities of three-, six- and 12-month will be held in the first quarter of this fiscal year. The government plans to raise the highest amount of Rs280 billion in September.

The government borrows from banks to finance its fiscal deficit as it did in the previous fiscal year but had failed to contain it.

It is believed that in the absence of any strategy for increasing revenue generation and bolstering economic growth, the government’s borrowing trend would not change during this fiscal year that may again breach the fiscal deficit target of 4 per cent of GDP.The government had set 5.5 per cent fiscal deficit target for 2010-11 which was revised up from 4.5 per cent, but analysts believe that even this revised target could not be achieved as the government continued to borrow heavily till last day of the previous fiscal.

Analysts predict that the revenue shortage would persist during the new fiscal year despite the fact that the Federal Board of Revenue had managed to exceed the revised target for 2010-11 by over Rs2 billion. In the new fiscal the FBR aims to collect about Rs2 trillion or 20 per cent higher over the previous year’s collection.

If the economy does not improve revenue generation, the government will not be able to contain the fiscal deficit resultantly the debt cycle continue eating up the required liquidity in the banking system for the private sector.

The government’s borrowing from banks remains unproductive and creates inflationary pressures. The FY12 will see the same tussle between the government and the private sector for borrowing from the banking system while the interest rate may remain on the higher side.

The auction calendar shows that PIBs would be sold in two auctions for Rs50 billion that will make the cumulative borrowing target of the government during the first quarter at Rs800 billion.