The federal government, through State Bank of Pakistan (SBP) on Wednesday, borrowed over Rs 23.463 billion from scheduled banks by auctioning the long-term investment bonds. The move is believed to be part of the cash-strapped coalition government’s plan to cater its budgetary needs during last quarter of the current fiscal year (April-June FY11) through “inflationary” bank borrowings, an antigrowth activity that analysts have constantly warned against.
The commercial banks, which are presently under fire for their ‘risk-averse’ and therefore antigrowth behavior, would be accruing an interest of over Rs 725.20 million from fresh borrowing on completion of the maturity period of the government guarantees.
The money was raised through the State Bank’s auction conducted on Wednesday to sell the Pakistan Investment Bonds (PIBs) for 3-, 5-, 7-, 10-, 15-, 20- and 30-year maturity period. With April 28 being the settlement date, coupon rates for the 3-, 5-, 7-, 10-, 15-, 20- and 30-year maturities were, respectively, set at 11.25, 11.50, 11.75, 12.00, 12.50, 13.00 and 13.75 percent.
Showing their inclination towards the risk-free and heavily-weighted government papers, the banks offered bids having a face value of over Rs 42.585 billion for purchasing the long-term bonds. The prices of Rs 100 asked by the banks for the above maturities were 94.89-94.64, 92.19-91.74, 90.25-89.93, 89.42-88.62, 88.61, 92.59-92.28 and 96.54-96.27. The total offered amount, if accepted, was to cost the federal government over Rs 1.298 billion on account of interest.
However, the government only accepted the bids of 3-, 5- and 10-year maturity amounting, respectively, to Rs 5.483, 3.453 and 14.527 billion at 94.82, 91.95 and 89.29 per Rs 100 cut-off price. Annual cut-off yield for the borrowed money was set at 14.0036, 14.0718 and 14.0995 percent with a per annum effective weighted average yield of 13.9929, 14.0413 and 14.0838 percent.
The federal government, through central bank, rejected the bids of the 7-, 15-, 20- and 30-year maturity aggregating to Rs 2.650 billion. The State Bank received zero offers under the heads of non-competitive bids and short-selling. Shifting its budgetary borrowing focus from central to the scheduled banks, the federal government has set a target of Rs 1.19 trillion to be borrowed from the commercial banks through the auction of Government Market Treasury Bills and Government of Pakistan Ijara Sukuk during this fiscal quarter.
According to SBP’s pre-auction target calendars, the government had set a target of Rs 1.15 trillion to be raised from the scheduled banks through the auctioning of MTBs of 3-, 6- and 12-month maturity.
Whereas, some Rs 45 billion have been targeted to be raised from Islamic banks by selling three-year Islamic bonds. Analysts are critical of this borrowing-centric ‘detrimental’ approach of the government, suggesting that economic managers of the country should rather focus more on recovery of the “stolen” money that an analyst said amounted not less than Rs 700 billion. Given the present ‘risk-averse’ tendency of commercial banks, economic observers also fear crowding out of the private sector that, they believe, is known as an engine of growth across the globe.
