KARACHI: The government plans to borrow Rs1.6 trillion by auctioning securities in the next three months (November to January), the State Bank of Pakistan said on Wednesday.

Such a large borrowing reflects growing need for liquidity and increasing fiscal gap.

And as the government’s borrowing pattern has changed over the previous year and it now relies heavily on short-term papers, most of the amount during the three-month period will be raised through market treasury bills (T-bills). Borrowing through long-term Pakistan Investment Bonds (PIBs) will be restricted to Rs150 billion.

PIBs have lost attraction due to falling returns; moreover, the government has curtailed borrowing through long-term bonds. In the previous auction of PIBs held on Oct 19, all the bids (worth Rs75bn) were rejected.

The coupon rates were 7.0 per cent, 7.75pc, 8.75pc and 10.75pc for three-, five-, 10- and 20-year tenors, but bankers wanted higher returns.

Furthermore, as the government is already heavily pressed with mountains of domestic debts, short-term borrowing at low interest rate is beneficial for it. The maturity of T-bills during the period is about Rs1.351tr, which shows the government would raise an additional Rs98.4bn for this period. The maturity in case of PIBs is about Rs118.9bn.

Banks have invested heavily in T-bills and their holdings of government papers have crossed a record Rs8tr.

The government has also started borrowing from the central bank, something prohibited under the International Monetary Fund’s programme which ended in September.

It is believed that the government would not be able to improve its revenue collection since the economic growth is facing several tough resistances like falling remittances, declining exports, poor cotton growth, shrinking foreign investment and poor domestic investment.

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