With hopes for foreign financing few and far during fiscal year 2011-12, the resource-constrained Government of Pakistan Friday unveiled its future line of action to meet its heavy budgetary expenditures during the possibly tough days ahead. The strategy seems to be based on an inward approach, motivated by what Federal Finance Minister Hafeez Sheikh said was the notion of self-sufficiency.
The cash-starved government has targetted to borrow Rs800 billion from the risk-averse banks during first quarter of the current fiscal year, July-September FY12.
According to State Bank data, during last fiscal year, July-June 18, FY11, the cash-strapped government budgetary borrowing from the banking system had aggregated to Rs693.504 billion against Rs370.470 billion of corresponding periods in FY10.
Economic observers have long been critical of the government’s borrowing-prone approach which they say not only deepens inflationary pressures in the poverty-hit country but also renders the growth-oriented private sector crowded out in terms of banks’ finances.
“The government seems to have stuck to the past trend of bank borrowing beyond the target because of a widening fiscal deficit and heavy participation from the (risk-averse) banks and financial institutions,” viewed Farhan Mehmood, an analyst at InvestCap Securities.
However, the federal governmentwould be raising the targetted billions by auctioning short- and medium-term risk-free and heavily-weighted government securities to primary dealers, through State Bank of Pakistan (SBP), .
According to the pre-auction target calendars issued by the central bank on Friday, the government had set a target of Rs750 billion to be borrowed from the scheduled banks through selling the Government of Pakistan Market Treasury Bills (MTBs) of 3-, 6- and 12-month maturity periods.
Whereas Rs50 billion would be raised from the banks through the auction of 3-, 5-, 7-, 10-, 15-, 20- and 30-year Pakistan Investment Bonds (PIBs).
The State Bank’s auction target calendar shows that the regulator would hold six auctions on July 13, July 27, August 10, August 24, September 7 and September 21, respectively, to realise Rs90, Rs120, Rs170, Rs90, Rs150 and Rs130 billion from the scheduled banks.
The settlement dates for the above auctions have been set, respectively, on July 14, July 28, August 11, August 25, September 8 and September 22.
The maturity dates for the 3-, 6- and 12-month treasury bills would range, respectively, between October 6 and December 15 (2011), January 12 and March 22 (2012) and July 12 and September 20 (2012), the State Bank calendar says.
Whereas the central bank invited bids on Friday from the designated primary dealers for the auction of the short and long term PIBs worth Rs50 billion. The targetted amount would be raised in two different auctions, Rs30 billion on August 17 and Rs20 billion on September 14.
The settlement dates for the investment bonds have been set on August 18 and September 15.
Economic observers, deeming the heavy borrowing detrimental for the ailing economy, suggest that country’s economic managers should embark on a nationwide plan to recover the “stolen” money amounting to at least Rs700 billion besides keeping its non-developmental expenses in check.
“Much of the borrowed money is being used under non-development expenditures and thus for unproductive purposes,” that provides no impetus to the economy, Farhan said.
The analyst said the democratically-elected government seemed to have focused more on political issues and not on economic ones which are more pressing.
