KARACHI: Analysts smell a rat as the State Bank of Pakistan despite global and domestic economic slowdown was able to raise Rs 51.84 billion ($608 million) by selling three-year Islamic bonds in the local market.
Last month, the central bank targeted a rise of Rs 80 billion by selling the three-year Government of Pakistan Ijara Sukuk, for which the first auction was held on Monday (November 8) with settlement on
November 15.
The second auction is scheduled on the 13th of next month to raise the second-phased Rs 40 billion with settlement on December 20.
Despite the prevalent economic crisis, lack of good governance and political instability, the SBP received a heartening response from the private sector on Monday as during Nov 05 to Nov 08, bids worth Rs 64.712 billion were offered which was approximately Rs 24 billion more than what the central bank’s target for the first auction.
Against the Rs 64.712 billion offer, the State Bank issued the Ijara Sukuk worth Rs 51.837 billion and declared that the cut-off margin for the three-year bond would be the benchmark six-month Market Treasury Bill weighted average yield.
In addition, the bank disclosed that the cut-off margin would be applicable to all accepted bids. However, this rosy picture on the private investment front was unable to satisfy some of the economic analysts who smell a rat while analysing the Monday-like upsets in the backdrop of ongoing economic recession and political instability in the crises-hit country.
“This is for a couple of reasons.
One, the banks instead of fulfilling the credit requirements of the ailing industries are investing in government Sukuk that ensure fixed returns as well as high yield,” a market analysts Naeem Rafi told Pakistan Today.
The analyst said that the commercial banks were reluctant to inject more liquidity (in the shape of credits) in the country’s trade and industrial sectors which was badly dented from shortages of fuel like gas and electricity.
Rafi maintained that the banks’ reluctance to invest in the ailing private sector was primarily due to the prevailing recessionary trend and a soaring policy rate. It may be recalled that the State Bank had recently increased its monetary policy rate from the previous 13 to 13.5 percent.
“The overall policy of the banks is not to provide facilities to the trade and industry but to go for the fixed and therefore, risk-free government bonds,” said the analyst adding “I apprehend that banks and not other private firms are buying the risk-free Sukuk.”
Elaborating on the State Bank’s move to raise money from the market, Rafi said that the central bank’s aim was to grab enough funds to cater to the ever-increasing government borrowings.
Many of the economic analysts, including the State Bank, believe that the government’s policy to depend on bank borrowing was not likely to see a noticeable change at least in the foreseeable future, specially in the wake of catastrophic floods which according to preliminary calculations of the Bretton Woods institutions, World Bank and International Monetary Fund, had inflicted damages of $9 billion upon the terrorism-hit country.
However, another analyst with a different view stated that surplus offers for the SBP’s Ijara Sukuk would be followed by greater improvements in the investors’ confidence.
“Fixed and reasonable returns attracted more companies which deemed it safe to invest in the government guarantees,” a market analyst Ahmed Nabeel told Pakistan Today.
Asked for his assessment about the second SBP auction due on December 13 for another Rs 40 billion, Nabeel was upbeat saying an encouraging response in the first auction was indicative that more improvement in the country’s ailing economy was imminent.
“If we have these offers despite weak economic indicators and political uncertainties one must be optimistic about improvement in future,” he added.
The analyst also believed that the government had realised the pressing need for good governance and would be focus on the same in near future, something that would augur well for the investors’ confidence.
