With little or no cash available for the growth-oriented private sector, the resource-constrained but highly paying federal government would be borrowing over Rs 1 trillion from the risk-averse banks during the fourth and last quarter of current fiscal year.
The central bank reported Monday that the government had set Rs 1.085 trillion target for its budgetary borrowings from the scheduled banks during April-June FY12.
The just-concluded third quarter, January-March, had seen the State Bank auctioning the heavily-weighted government papers to the tune of Rs 777 billion to cater the cash-strapped government’s ever–increasing budgetary needs
According to the central bank’s pre-announced auction calendar, issued Monday, during last quarter the funds-starved government would be borrowing Rs 995 billion, Rs 50 billion and Rs 40 billion from the banks, respectively, through the sale of Government of Pakistan Market Treasury Bills (MTBs), Pakistan Investment Bonds (PIBs) and Ijara Sukuk.
The economic observers call it a sort of cyclical debt as the central bank, on one hand, is raising billions of rupees from the banks for the government and injecting mammoth liquidity into the system on the other. First day of the week, Monday, saw the regulator injecting a huge sum of Rs 242.500 billion into the system where, the SBP believes, many of the small banks would fail if it stopped pumping cash on weekly basis.
The amount was injected at 11.55 percent rate of return through reverse repo open market operation.
Of the total Rs 1.085 trillion targeted amount, Rs 30.668 billion and Rs 11.382 billion would be raised as an additional requirement of the government.
During the period under review, the central bank would be conducting seven auctions to be conducted on 4th and 18th of April, 2nd, 16th and 30th of May and 13th and 27th of June, respectively.
On the auction dates the government has targeted to raise Rs 160 billion, Rs 200 billion, Rs 180 billion, Rs 110 billion, Rs 140 billion, Rs 120 billion, and Rs 85 billion, respectively.
An additional amount of Rs 30.668 billion includes the total money to be borrowed through T-bills auction.
The auctions for selling Rs 50 billion Islamic bonds, called Ijara Sukuk in Shariah-compliant banking, would be conducted on April 23 and June 20 to raise Rs 25 billion in each auction.
“(The) maximum value of the asset under the present issuance program of the Ijara Sukuk is Rs 126.21 billion,” said the State Bank. Whereas the Rs 40 billion targeted against the sale of -3, 5-, 10-, and 20-year PIBs would be raised in two auctions on April 25 and May 23.
Rs 20 billion is the amount rounded off target. Also, Rs 11.382 would be raised additionally of the total Rs 40 billion.
The coupon rates for 3-, 5-, 10- and 20-year bonds has been set at 11.25, 11.50, 12.00 and 13.00 percent, respectively.
The economic observers are concerned as the cash-strapped governments, both in the center and provinces, are relying almost totally on the banks for catering their ever-burgeoning budgetary requirements. While the banks; advances to the private borrower is depleting their investment in the risk-free government securities would be well above Rs 3 trillion by the end of this financial year, June FY12.
The analysts concern is that much of the banking liquidity being sucked up by the cash-strapped government is being used for non-productive purpose: running of the government. This trend, they warn, would leave the private sector sans cash thus dealing fresh blow to the government’s growth targets for FY12.
