Given its ever increasing budgetary requirements, the cash strapped federal government is left with no viable option other than to borrow from ‘risk-averse’ commercial banks at heightened backbreaking interest rates. The federal government, through the central bank, on Wednesday borrowed Rs158.834 billion more from the scheduled banks through auctioning the short and long-term government guarantees.
According to the State Bank of Pakistan (SBP), the funds starved government’s budgetary borrowing from the banking system has risen to Rs624.137 billion during July-May against Rs346.010 billion during the corresponding month last year, an annual increase of 80 percent.
A fortnight ago, May 4, when the central bank, through auctioning short and long-term market treasury bills (MTBs), had raised over Rs254.19 billion from the scheduled banks for the government which faced a gaping budget deficit of 4.5 percent or Rs 783 billion during the first 10 months of the current financial year.
The fresh loan of Rs 158.834 billion was raised through the State Bank’s auction conducted on Wednesday to sell the Government of Pakistan MTBs of three, six and twelve month maturity period. The commercial banks for quite sometime have come under fire for their ‘risk-averse’ behavior of avoiding loan facilitation to the growth-oriented private sector and prioritising the risk-free and heavily-weighted government papers like MTBs and PIBs to accrue handsome profits on account of mark up on completion of the given maturity period.
Showing their inclination towards the risk-free sovereign guarantees, the commercial banks offered bids having a face value of over Rs 190.934 billion in the present auction. The money offered against the three, six, and twelve month MTBs accounted for Rs 28.285, Rs 99.620 and Rs 63.029 billion, respectively. However, the government accepted bids worth Rs 158.834 billion with a respective maturity-wise breakup of Rs 27.085, Rs 81.620 and Rs 50.129 billion.
The desperate struggle to meet expenses keeps the government on its toes and forces it to raise the rate of return on the borrowed money as Wednesday’s auction saw the SBP increasing the weighted average yields to 13.1480, 13.5421 and 13.8224 percent. The SBP, in its May 4 auction, had offered the weighted average yields of 13.0643, 13.4528 and 13.7833 percent for the the three, six, and twelve month MTBs, respectively. Similarly, the cut off yield for the new borrowings was also boosted to 13.2081, 13.5984 and 13.8424 percent against 13.0697, 13.4841 and 13.7905 percent of the last auction.
The resource-constrained federal government has set a budgetary borrowing target of Rs 1.19 trillion to be raised from the scheduled banks through the auction of MTBs and Islamic bonds during the ongoing last quarter, April-June FY11. According to SBP data, the government would be raising Rs 1.15 trillion through auctioning the three, six and twelve month MTBs, whereas some Rs 45 billion has already been borrowed from the Islamic banks through selling three-year Ijara Sukuk. Analysts adopt a critical stance on this borrowing-centric approach of the economic managers saying the latter should focus more on recovery of the public money ‘embezzled’ through corruption. According to analysts, the ‘stolen’ money ranges between 700 and Rs 800 billion rupees. Analysts deem the government’s heavy budgetary borrowing from the State Bank as inflationary in nature, saying if it is not arrested; the trend would take the country to the abyss of triple-digit hyperinflation.
