KARACHI: The government will raise Rs1.25 trillion in the second quarter of this fiscal year through treasury bills and Pakistan Investment Bonds (PIBs).

The State Bank announced the auction calendar for the two government papers. The government will raise Rs150bn through PIBs and Rs1.1tr through T-bills during Oct-Dec 2015-16.

Till the end of August 2015, banks invested Rs2.932tr in PIBs and Rs2.533tr in T-bills.

Borrowing for budget deficit increased in the first quarter which compelled the government to ask the IMF for waivers on the criterion of fiscal deficit.

According to another report of the State Bank, borrowing for budgetary support during the first quarter of this fiscal year rose to Rs268bn compared to Rs76bn during the same period last year.

In recent talks with the IMF in Dubai, the IMF board reportedly granted approval for waivers regarding ceiling of the budget deficit and borrowing from the State Bank.

There is a wide opening for the government to start borrowing from the central bank while low inflation is also helpful. It is believed that borrowing through central bank is inflationary in nature, but low inflation, like 1.3 per cent in September, provides an opportunity to the borrower to take risk.

The government’s record borrowing in FY15 through scheduled banks left no option for banks to participate with the domestic investors which badly hit both investment and economic growth. Foreign direct investment was also negligible in fiscal year 2015 as it remained around $851 million.

In the last auction of T-bills, banks were reluctant and they invested Rs54bn compared to the target of Rs125bn set by the government.

However, banks have been facing an acute shortage of liquidity while the spread between the injected liquidity by State Bank and investment in T-bills has shrunk to no-interest level.

For the last two days, the State Bank has been injecting liquidity into the banking system. In the last two days of this week, it injected over Rs1.2tr.

On Oct 1, it injected Rs500bn for eight days and Rs704.7bn for seven days on Oct 2. Injections show the banks will buy government papers during the second quarter.

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