The federal government intends to borrow a huge amount of Rs 1.2 trillion from domestic banking system during three months (February-April) of current fiscal year 2014-15 to meet the fiscal deficit. Although, foreign inflows have increased during this fiscal year, the federal government is compelled to borrow from domestic banking sector to meet its financial requirements.
During this fiscal year the government has successfully raised $1 billion through the auction of Sukuk bond in the international market, while an amount of over $1 billion has also arrived from the International Monetary Fund (IMF) on account of Extended Fund Facility (EFF).
The State Bank of Pakistan (SBP) Tuesday issued two calendars for the auction of Pakistan Investment Bonds (PIBs) and the Market Treasury Bills (MTBs) for borrowing in next three months (February to April FY15). According to these calendars, cumulatively the federal government intends to borrow some Rs 1.2 trillion form banking sector during three months.
Bankers said that less than target revenue collection and higher expenditures have forced the federal government to continue borrowing from domestic resources. "In the current scenario, when the government is facing a massive revenue shortfall and expenditures are on higher side, borrowing from domestic banking system is one of the best options to meet the fiscal deficit," they added.
However, they said, it's a good indication that major borrowing is being made from scheduled banks while lending from the SBP is continuously on decline. According to the SBP, an amount of Rs 150 billion will be raised through three auctions of 3-,5- and 10-year PIBs. This includes some Rs 30 billion maturity and an additional amount of Rs 120 billion. First auction will be held on February 11, 2015 with the target amount of Rs 50 billion. The remaining Rs 100 billion will be raised through two auctions, to be held on May 11 and April 8, respectively.
Similarly, the government intends to borrow Rs 1.05 trillion from domestic banking sector through sale of Pakistan Market Treasury Bills of 3-month, 6-month & 12-month in February-April of FY15. The proposed amount includes Rs 1.052 billion maturity. The MTBs' auction will be held fortnightly and a total 7 auctions have been announced by the State Bank for the February-April period of current fiscal year.
The first auction of T-Bills has already been conducted in the first week of this month and some Rs 174 billion were borrowed against a target of Rs 150 billion. The second auction will be held on February 18, with a tentative target of Rs 50 billion. Two T-Bills auctions will be conducted in March for Rs 275 billion. The remaining three MTBs' auctions are scheduled for April 2015 for cumulatively an amount of Rs 575 billion.