The federal government has set a tentative borrowing target of Rs 975 billion for third quarter of this fiscal year (FY15) to meet the fiscal deficit. The entire amount will be raised through the domestic banking system via the auction of Pakistan Investment Bonds (PIBs) and Market Treasury Bills (MTBs).
The targeted amount is much lower than previous quarter (2QFY15), in which the federal government''s tentative borrowing target stood at Rs 1.4 trillion. The entire reduction has been witnessed in the MTBs auction. Analysts said rising inflows from foreign resources has provided some space to the federal government to reduce its borrowing from domestic banking system. Analyst Khurram Schehzad said the recent inflows from foreign donors and creditors, the Sukuk and Eurobond issues have also helped decrease borrowing needs. A massive decline in oil prices in the world market and subsequent reduction in power subsidies have created fiscal space and reduced borrowing requirements of the federal government, he added.
"The lower borrowing will be good for financial markets as it will have more opportunities for the private sector borrowing alongside lower the interest rates going forward," he said. However, he said there is still need to take some steps to increase the revenue collection through tax reforms to further limit the reliance on banking system.
Analysts said the federal government is compelled to continue borrowing from the domestic banking system mainly due to revenue shortfall, power subsidies and rising current expenditures. During the last quarter the government borrowed some Rs 1.333 trillion through the auction of short-term and long-term government papers compared to tentative target of Rs 1.395 trillion. As against the target of Rs 150 billion some Rs 358 billion were raised in October-December FY15. Some Rs 974 billion compared to the target of Rs 1.245 trillion were borrowed through MTBs in 2QFY15.
Meanwhile, the State Bank of Pakistan Friday issued two calendars for the auction of long-term government papers - Pakistan Investment Bonds (PIBs) and short-term Market Treasury Bills (MTBs) for the third quarter (January-March) of FY15. According to these calendars the federal government would borrow some Rs 975 billion from the banking sector during third quarter of this fiscal year. The planned borrowing during the third quarter of FY15 is some Rs 420 billion lower than second quarter of FY15, in which the government announced to borrow some Rs 1.395 trillion.
According to the SBP, an amount of Rs 150 billion will be raised through the auction of 3-, 5- and 10-year PIBs. This includes some Rs 213 billion maturity. Overall, three auctions will be held during the third quarter, ie, on January 28, February 28 and March 25, 2015 respectively and each auction will be for Rs 50 billion.
In addition, the government has planned to borrow Rs 825 trillion from the banking sector through the sale of Pakistan Market Treasury Bills of 3-month, 6-month and 12-month period in the second quarter of FY15. The proposed amount includes Rs 660 billion maturity and an additional amount of some Rs 165 billion. Auction for MTBs will be held fortnightly and a total 6 auctions have been announced by the State Bank for the January-March 2015 period of current fiscal year. The first auction for T-Bills will be held on January 7 to raise Rs 225 billion, second on January 21 for Rs 175 billion, third on February 4 for Rs 150 billion and fourth on February 18, 2015 with a tentative target of Rs 50 billion. Two more auctions will be held on March 4 and March 18 to borrow Rs 75 billion and Rs 150 billion, respectively.