The resource-constrained government continues to borrow from the banking system and on Wednesday raised over Rs152.233 billion through the auctioning of Market Treasury Bills (MTBs) to finance its ever-increasing budgetary needs.
The Federal Ministry of Finance raised the fresh loan through the central bank which, from September 21 to 22, invited tenders from the primary dealers for the sale of 3-, 6- and 12-month treasury bills.
The scheduled banks have long been under fire for their ‘risk-averse’ behaviour towards extending credit to the growth-oriented private sector and prioritising the risk-free and heavily-weighted government papers like MTBs, Ijara Sukuk and Pakistan Investment Bonds.
Proving this impression true on Wednesday, the banks submitted huge bids worth Rs285.893 billion, Rs2.671 billion for 3-month, Rs64.667 billion for 6-month and Rs218.555 billion for the 12 month maturity periods.
The central bank, however, accepted bids having a face value of Rs152.233 billion, Rs1.121 billion for 3-month, Rs47.112 billion for 6-month and Rs104 billion for 12-month periods.
To cater 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 3-, 6- and 12-month treasury bills, respectively, at 13.0351, 13.1965 and 13.2888 per cent. The cut-off yields for the new loan have been set at 13.0697 per cent, 13.2331 per cent and 13.3124 per cent, respectively. According to State Bank of Pakistan (SBP) data, during last fiscal year, 2010-2011, the government’s budgetary borrowings from the central and scheduled banks had aggregated to Rs718.357 billion against Rs427.171 billion of FY10.
Of the total Rs718 billion, the government had raised some Rs560.946 billion from the scheduled banks, 143 per cent or Rs330.276 billion higher than last year, leaving less space for the private sector which, this year too, seems all set to be crowded out in terms of financing.
The economic managers of the calamity-hit country have so far failed miserably to cut short on the government’s lavish budgetary spending, particularly the non-development ones.
The government also seems to be lacking the political will to withdraw huge public subsidies that, the analysts say, have become a white elephant for the already ailing national exchequer.
The federal government, having claimed to have pulled itself away from its traditional begging bowl, the International Monetary Fund (IMF), seems to have decided to rely more on the banking system for financing its widening budget deficit during the current year.
The economic observers, however, are critical of this borrowing-centric approach saying the government should diversify its sources of revenue through broadening the tax net ideally to 15 per cent tax-to-GDP ratio level, recovering the Rs700 to Rs800 billion public money “embezzled” by the corrupt politicians and bureaucrats and embarking upon an across the board austerity plan to reduce the size of the government.
The analysts deem the government’s heavy budgetary borrowing from the State Bank as “inflationary” warning that, if not arrested, the trend would take the poverty-stricken country to the brink of triple-digit hyperinflation. Unwary of these warnings, the government has, reportedly, declared to borrow over Rs200 billion from the banks to resolve the lingering circular debt issue once and for all.
