The federal government has planned to borrow some Rs 3.8 trillion from the banking sector during the second quarter (Oct-Dec) of current fiscal year 2017-18. Sources in banking industry said lower revenue collection and rising expenditures have compelled the government to continue its reliance on the domestic banking system to meet its rising financial needs. "In a scenario, when the government has less than expenditures revenue collection, borrowing from the banking sector is an option for the government to meet fiscal deficit, they added.
The State Bank of Pakistan's (SBP) domestic markets and monetary management department has issued two calendars for the auction of Pakistan Investment Bonds (PIBs) and Market Treasury Bills (MTBs). According to these calendars, the federal government intends to raise some Rs 3.8 trillion from the banking sector in Oct-December of FY18 to fulfill its financial needs.
The planned borrowing during the second quarter of this fiscal year is some 166 percent higher than the same period of last fiscal year. During Oct-December of FY17, the government borrowing target through PIBs and MTBs stood at Rs 1.425 trillion. However, despite higher borrowing target, the total tentative borrowing in the second quarter of this fiscal year has some Rs 3.605 trillion of the matured amount, while the additional requirement is still in negative Rs 4.9 billion.
According to the announcement, the federal government is intending to borrow Rs 200 billion through long-term security papers - PIBs. The first auction of 3-, 5-, 10- and 20-year long-term investment bonds will be held on October 18, 2017 with a target amount of Rs 100 billion. Another auction with Rs 50 billion target will be held on November 15, 2017 while the third auction for another Rs 50 billion will be conducted on December 17, 2017.
In addition, the federal government has planned to borrow Rs 3.6 trillion from the banking sector through the sale of Pakistan Market Treasury Bills of 3-month, 6-month & 12-month in the second quarter of FY18. The auction for MTBs will be held on a fortnightly basis and total six auctions have been announced by the State Bank for the October-December period of current fiscal year. The first T-bills auction will be held on October 12, 2017 for the sale of Rs 650 billion worth MTBs. The second auction has been planned on October 26, 2017 with a tentative target of Rs 650 billion.
Two more auctions will be held on November 9 and November 23, 2017 with a target of Rs 650 billion and Rs 550 billion, respectively. Two auctions have been planned on December 7, and December 21, 2017 to borrow a total Rs 1.1 trillion.
Banker said that owing to lower interest rate, banks' higher investment flow has been witnessed in short-term papers (MTBs) during this year in contrast to last year when more investments were made in PIBs.
"Besides change in the government's institutional choice and maturity preferences for its borrowings, banks also showed mild interest in PIBs as they are not willing to park their investment at lower interest rate for long-term period," they added.