SBP’s auction calendar: Cash-strapped govt to borrow record Rs10trn in 3 months

KARACHI: The cash-strapped federal government plans to borrow record over Rs 10 trillion from the commercial banks in the next three months to finance the fiscal deficit.

According to auction calendar issued by the State Bank of Pakistan (SBP) on Thursday, the federal government to raised Rs 8.7 trillion sale of short term Government of Pakistan Market Treasury Bills (MTBs) during Jun-August 2023 as against the maturing amount of Rs 7.5 trillion. Overall some six auctions have been announced in the next three months by the SBP to meet the financing target.

In addition, the federal government will borrow worth Rs 1.66 trillion through sale of long term Pakistan Investment Bonds (PIBs) during June-Aug 2023. This include Rs 480 billion through sale of Government of Pakistan Investment Bond (PIB) Fixed Rate, Rs 480 billion PIB Floating Rate Semi-Annual Auction, Rs 700 billion against sale of 2-year and 3-year PIB (Floating Rate) Quarterly Auction.

May-July: govt intends to borrow record Rs9.4trn

Cumulatively, the federal government is intend to raised record Rs 10.361 trillion from domestic market through sale of short term and long term security papers.

Analysts said that the government’s increased reliance on scheduled banks for its financing needs in the absence of central bank and external borrowing. Therefore, the federal government is heavily borrowing from the banks to meet its financial requirements.

According to statistics, during the first nine months of this fiscal year (01st Jul-31st Mar FY2023), government borrowing for budgetary support increased to Rs 2.415 trillion as compared to Rs 938.5 billion during the same period last year. During July-March, FY23, budget deficit financing from domestic sources stood at Rs 3.762 trillion as compared Rs 1.584 trillion during same period last year.

This increased in financing requirements elevated pressure on domestic banking system due to absence of adequate external loan inflows. Resultantly, net government borrowing from banking system stood at Rs 2.39 trillion as compared to the government borrowing of Rs 883.4 billion during the same period last year.

The liquidity conditions in inter-bank money market remained relatively strained during July-March FY23 as compared to the same period last year. The average outstanding Open Market Operations (OMOs) almost doubled and soared to a highest level of Rs 6.521 trillion during the review period as compared to Rs 2.642 trillion in the same period last year.

During July-March FY23, market offered a total amount of Rs 28.809 trillion in primary auction for T-Bills, slightly higher than Rs 26.426 trillion offered amount during same period last year. Within the offered amount, the Government has raised Rs 15.515 trillion (54 percent of the offered amount) in the T-Bill’s auction as compared to last year accepted amount of Rs 12.959 trillion (49.0 percent of the offered amount).

The acceptance for the tenors under T-Bills mainly generated within 3 months. During July-March FY23, market offers Rs 3.587 trillion under fixed rate PIBs which is around 33.0 percent of offered amount, while for floaters, the market offered Rs 7.18 trillion, 67.0 percent of the offered amount.

In this backdrop, floaters helped the Government to raise medium-to-long term debt. Given these favourable traits of floaters, the Government was able to raise Rs 4.861 trillion via issuances of floating rate PIBs (83.4 percent of accepted amount). Moreover, 2-year quarterly coupon PIBs remained the market’s most favored instrument floaters which contribute around 44 percent of floaters accepted amount.

Copyright Business Recorder, 2023