KARACHI: The federal government has planned to borrow Rs 1.4 trillion from domestic banking sector during the next three months (Sep-Nov) of 2016 in order to meet the fiscal deficit target.

Sources in banking industry said that revenue shortfall and rising expenditures had compelled the federal government to borrow from domestic banking system. Although, the Federal Board of Revenue (FBR) is struggling to enhance its tax revenue collection, the government needs additional resources to meet its financial requirements.

The State Bank of Pakistan (SBP) has issued two calendars for the auction of long term government papers — Pakistan Investment Bond (PIBs) — and short term government securities — Market Treasury Bills (MTBs) — with a tentative borrowing target of Rs 1.4 trillion during Sep-Nov 2016.

According to the SBP, an amount of Rs 250 billion will be raised through auction of 3-, 5- and 10-year PIBs in next three months. This includes some Rs 74.719 billion maturity and an additional amount of Rs 175.281 billion. Out of three auctions, first auction will be held on Sep 7, 2016 with target amount of Rs 100 billion. Another, Rs 100 billion will be raised through second auction, to be held on Oct 5, 2016 and third auction will be conducted on Nov 2, 2016 for an amount of Rs 50 billion.

In addition, the government has planned to borrow Rs 1.150 trillion from banking sector through sale of T-Bills of 3-, 6- and 12-month in Sep-Nov 2016. The proposed amount includes Rs 966.423 billion maturity and an additional amount of Rs 183.577 billion.

Auction of MTBs will be held fortnightly and some six auctions have been announced by the State Bank. First auction of the bills will be on Sep 9, 2016 for sale of Rs 100 billion worth MTBs. Second auction will be held on Sep 28, 2016, with a tentative target of Rs 100 billion.

Two more auctions will be held in Oct for cumulative borrowing of Rs 500 billion. In addition, remaining Rs 500 billion will be raised during Nov 2016 through two auctions.

It may be mentioned here that according to State Bank of Pakistan (Amendment) Act (2012), government borrowing from the SBP is required to be repaid at the end of each quarter and the existing debt stocks as on 30th April 2011 to be retired in eight years i.e. 2019. While, in case of not meeting these provisions, the Act also stipulates that the federal government will submit a statement to the Parliament giving detailed justification. Therefore the federal government has significantly reduced its borrowing from the central bank to meet this condition.

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