KARACHI: The government realised just Rs27.5 billion through the auction of treasury bills on Wednesday, but its huge borrowing from the State Bank of Pakistan (SBP) seems to have disrupted fiscal discipline it has followed for the last three years.
The SBP reported that the government had the auction target of Rs100bn, of which Rs34.6bn was the maturing amount and Rs65.4bn was the additional requirement.
In the last three years, the government followed the fiscal path approved by the International Monetary Fund (IMF), which helped it curtail the fiscal gap. Now that the government has completed the loan programme with the IMF, it is free to manage its fiscal affairs without any intervention.
With the first quarter of the running fiscal coming to an end, the government has already borrowed Rs828bn from the central bank. It is clearly a deviation from the earlier policy of the government borrowing only from scheduled banks.
Analysts believe the government is taking advantage of low inflation. The government does not anticipate a sudden rise in inflation, although the SBP has hinted at an increase in coming months.
The SBP kept the interest rate unchanged at 5.75 per cent in the monetary policy announced last week, fearing a rise in inflation. The central bank argued that the average inflation for the first two months of the fiscal year was more than double compared to a year ago.
Borrowing from the central bank is inflationary in nature, but the government is doing it nonetheless in view of the prevailing low inflation.
Borrowing from scheduled banks is still showing a negative figure that means the government has been retiring scheduled banks’ debt.
The treasury bills’ auction report showed banks were keen to invest Rs83.5bn in government papers, but that still fell short of the target set by the government. The highest amount (Rs17.5bn) was invested in three-month papers while Rs10.1bn was invested in 12-month papers. However, the benchmark six-month treasury bills could hardly attract Rs747 million.
Analysts said government borrowings in the first quarter (July-September) may surpass the Rs1 trillion figure.
The finance minister in his budget speech had said the fiscal deficit would be brought down to 3.8pc of gross domestic product. The government claims that the deficit was 4.3pc in 2015-16.
Banks keep over 80pc of their liquidity in government papers. Bankers believe the government will rely largely on the central bank for borrowing during the current fiscal year, which may hamper the earnings of banks.