KARACHI: Despite falling return on government papers, banks are still eager to invest in Pakistan Investment Bonds (PIBs) as they offered Rs144 billion on Wednesday, but the government raised even less than the target of Rs50bn.

Although the auction attracted banks and other investors, the government decided to remain within the target and borrowed Rs33.4bn because it is already heavily loaded with PIBs and T-bills.

However, the trend to invest in three-year papers was visible and most of the amount was raised for this category.

The government is avoiding borrowing from the State Bank and is relying on scheduled banks, but the amount of borrowing is much higher than last year.

Total borrowing through PIBs and T-bills reached Rs7.5 trillion till the end of October 2015. This massive borrowing costs over Rs1.1tr to the government owing to debt-servicing, according to SBP figures.

On Wednesday, investors offered Rs109bn in PIBs for three-year, showing the banks were trying to park their maximum liquidity in this category. The long-term bonds failed to attract a significant amount. The government accepted Rs1.17bn for five-year and Rs212m for 10-year bonds.

Scheduled banks have been facing liquidity gap for more than a year, but their investment in government papers has been rising and it reached almost Rs6tr by the end of October, 2015.

The State Bank has been injecting over Rs1.1tr liquidity into the banking system enabling the banks to extend loans to the government. The revenue shortage kept the government in deficit forcing it to borrow more.

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