The cash-starved government on Wednesday borrowed over Rs122.131 billion more from commercial banks to finance its ever widening fiscal deficit.
The central bank data shows that the resource-constrained government during July-June 25 of Fiscal Year 2010-2011 had borrowed over Rs718.357 billion from the banking system. The borrowed amount was 68 per cent or Rs291.186 billion higher than Rs427.171 billion the government had raised in the corresponding period of FY10. Of the total Rs718.357 billion, the government had raised some Rs560.946 billion from the scheduled banks which were 143 per cent or Rs330.276 billion higher than what the government borrowed from banks last year.
Whereas the coalition government seems to have devised a strategy to rely more on banks’ finances, the economic bigwigs like the chief economist and the Governor State Bank have started dissociating themselves from the government which, some analysts perceive, is inching towards an irreversible fiscal mismanagement. The fresh loan on Wednesday was raised through the State Bank that auctioned the Government of Pakistan Market Treasury Bills (MTBs) of three, six and twelve-month maturity period. The scheduled banks, which have been under fire for their risk-averse behavior towards private credits, rushed to acquire the risk-free sovereign guarantees and came up with bid offers higher by Rs37 billion than what were accepted by the regulator. The banks bids were having a face value of over Rs159.546 billion in response to SBP’s call for investment in the heavily-weighted government securities. The money offered against the three, six, and twelve month MTBs accounted, respectively, for Rs34.765, Rs57.379 and Rs77.402 billion. The SBP, however, accepted bids having a face value of Rs14.100 billion for three month, Rs41.129 billion for six month and Rs66.902 billion for the twelve month maturities.
This time the banks went a bit out of way by investing in the relatively long-term papers, of twelve months maturity against which; bids stood at over Rs77 billion. Owing to its pressing budgetary needs the cash-strapped government usually offers an attractively increased rate of return on the borrowed money. Wednesday’s auction saw the SBP setting the weighted average yields for the three, six and twelve month treasury bills, respectively, at 13.5180 per cent, 13.7623 per cent and 13.9072 per cent. During the last auction on July 13 the government had borrowed Rs110 billion and had set the weighted average yields for auctioning MTBs for the same maturity periods at 13.4808 per cent, 13.7407 per cent and 13.9048 per cent respectively. The cut-off yields for the newly borrowed money have been set at 13.5313, 13.7815 and 13.9204 against 13.4851 per cent, 13.7586 and 13.9074 set in the last auction.
For the current quarter, July-September FY12, the government has set Rs800 billion budgetary borrowing target to be raised from scheduled banks. The analysts have been warning the government against this borrowing-centric approach saying the latter should diversify its source of revenue through broadening the tax net, recovering the embezzled money amounting to around Rs800 billion and cutting its still rampant non-development expenditures. The analysts deem the government’s heavy budgetary borrowing from the State Bank as “inflationary” contending that, if not arrested, the trend would take the country to the brink of triple-digit hyperinflation. On the other hand, the observers also warn commercial banks against adopting a ‘risk-averse’ behavior that, they say, has almost crowded out the private sector which is considered to be the engine of growth.
