The government borrowed over Rs110.619 billion on Wednesday from commercial banks to finance its budgetary needs. According to State Bank of Pakistan fiscal year 2010-2011 had seen the government’s budgetary borrowings aggregate to Rs718.357 billion compared to Rs427.171 billion of FY10.
The analysts deem the government’s heavy budgetary borrowing from the State Bank as “inflationary”. The observers also apprehend that the present ‘risk-averse’ tendency of commercial banks has almost crowded out the private sector which is crucial for economic growth.
Govt borrowing 143pc higher than last year
Of the total Rs718.357 billion, the government raised Rs560.946 billion from scheduled banks which is 143 per cent or Rs330.276 billion higher than what the government had borrowed last year. The government seems to have embarked upon a fresh spree of bank borrowings. Governor State Bank Shahid H. Kardar resigned from his post on Wednesday due to, what sources allege to be, a concern for fiscal mismanagement. The government raised the fresh loan through the central bank’s auction of the Government of Pakistan Market Treasury Bills of three, six and 12-month maturity period.
Scheduled banks risk averse
The scheduled banks have been under fire for being risk-averseand not extending loans to the private sector. Instead they are giving priority to risk-free government papers like MTBs and PIBs. Holding true to this analysis the commercial banks came up with extensive offers of over Rs175.119 billion on Wednesday in response to the regulator’s call for investment in government securities. The money offered against the three, six and 12-month MTBs was Rs35.735, Rs85.755 and Rs53.629 billion respectively. The central bank accepted bids having a face value of Rs110.619 billion.
Increased rate of return
Owing to its pressing budgetary needs the government usually offers an attractive increased rate of return on the borrowed money. The Wednesday’s auction saw the SBP setting the weighted average yields for the three, six and 12-month treasury bills, respectively, at 13.4 percent, 13.7 percent and 13.9 percent During the last auction on June 15 the government had borrowed Rs180.359 billion and had set the weighted average yields for auctioning MTBs for the same maturity periods at 13.5, 13.7 and 13.8 percent.
Govt to raise Rs1.15 trillion through T-bills
The government has set a budgetary borrowing target of Rs1.19 trillion which is mostly to be raised from scheduled banks through the auction of MTBs and Islamic bonds during the ongoing fiscal quarter, April-June FY11. The government was to raise Rs1.15 trillion through the auctioning of treasury bills, whereas another Rs45 billion were to be borrowed from the Islamic banks through selling the three-year Ijara Sukuk. Economic observers are critical of this borrowing-centric approach of the government saying that it should also focus on the recovery of public money “embezzled” by corrupt politicians and bureaucrats. According to analysts, the “stolen” money is between Rs700 and Rs800 billion.
