State Bank raises T-bill, PIB auction targets to cover budget deficit

Published: April 1, 2011
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Reliance on domestic sources creating liquidity shortage for private sector. PHOTO: FILE/MUSTAFA AMIN

Reliance on domestic sources creating liquidity shortage for private sector. PHOTO: FILE/MUSTAFA AMIN

KARACHI: 

The State Bank of Pakistan (SBP) has planned to increase financing through domestic secondary debt markets during the last quarter of the current fiscal year, to cover the budget deficit after encountering a shortfall in foreign financing.

In the latest monetary policy statement issued on March 26, the central bank pointed out, “On the financing side, only Rs48 billion was received from external sources to finance the budget, against the estimate of Rs230 billion,” in the first half of the current fiscal year.

The central bank plans to sell Rs60 billion worth of Pakistan Investment Bonds (PIB) and Rs1,150 billion worth of treasury bills (T-bills) in the final quarter (April to June) of the current fiscal year, according to separate releases issued by SBP on Thursday. It also intends to sell three-year Ijara Sukuk, amounting to Rs45 billion, during this period. In comparison, the targets for sale of PIBs and T-bills were Rs35 billion and Rs980 billion, respectively for the quarter ended March 31.

Auctions for treasury bills will be held every two weeks, between April 6 and June 29, where three-month, six-month and 12-month T-bills will be sold to competitive bidders. Three auctions of PIBs will be conducted in the last quarter of the current fiscal, with targets of Rs20 billion each. The auction for Ijara Sukuk will be held on May 9.

“The government has already borrowed substantial amounts, Rs329 billion between July 1, 2010 and March 12, 2011, through various instruments, increasingly in the three-month treasury bills,” said the policy statement issued previously.

“As long as the central bank has to rely on raising additional financing to cover the budget deficit, interest rates will remain strong,” said InvestCap Head of Research Khurram Shehzad, adding, “Given the current circumstances, it is unlikely that the central bank will cut the discount rate in upcoming monetary policy reviews.”

The government’s increased reliance on domestic sources for budgetary financing, as well as other reasons such as commodity operations, is also creating a shortage of liquidity for the private sector. The announcement of higher targets for the sale of T-bills, PIBs and Ijara Sukuk suggest that efforts to rein in ballooning government borrowing will likely stretch beyond the current fiscal.

Published in The Express Tribune, April 01st, 2011.

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Reader Comments (2)

  • Ali
    Apr 1, 2011 - 1:41PM

    Wonderful economic system we have.
    Keep borrowing and printing notes.
    Don’t tax the rich.
    Let inflation shoot through the roof.
    Waste whatever little government spenditure there is wasteful projects like parliamentary lodges instead of education/health.
    Democracy gives you the government you deserve. We must all be a very bad bunch of people to deserves these Bhuttos and Sharifs and Nawabs that govern us.Recommend

  • Hedgefunder
    Apr 1, 2011 - 2:15PM

    This is really bad news, hidden in disguise to awaiting further problems not only in the current fiscal year, but to follow in perhaps next 2-3 years too!!
    There are too many uncertainties and with the view to current economic and political climate, this is going to be a case of passing the bucket of hot coal to the future govts too.
    Ali is right ! the level of politicians and their integrity is really doing some very serious damage to the country !!
    Love to see how the Intl Lenders and institutions are going to view this current idea.Recommend

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