KARACHI: The government raised Rs705 billion through an auction of market treasury bills despite Rs1.195 trillion bids offered mostly by banks on Wednesday.

The bidding trend showed that banks were saturated with liquidity and willing to park maximum in the government papers. The government remained around its target of Rs750bn but the accepted amount was much higher than the maturing amount of Rs630bn.

The revenue shortfall during the first 10 months of the current fiscal reported at Rs381bn but the cash-starved government has already borrowed about Rs3 trillion from commercial banks.

Market experts said bank deposits increased during the current financial year as they were not willing to extend loans to the private sector.

The bank advances to the private sector dropped by 81 per cent during the current fiscal year indicating the poor health of the economy. The IMF and WB predicted 0.5pc GDP growth this fiscal year.

One of the major reasons for the sharp decrease in lending to the private sector is the record interest rate. The State Bank’s policy rate is 21pc but the clients could get money at much higher rates from banks.

Bankers said there were two obvious reasons for this extremely low lending to the private sector -- unprecedented inflation of 36pc and banks unwilling to lend money amid a highly uncertain economic and political situation for obvious reasons.

This prolonged uncertainty devalued the local currency by 54pc in a year and the bankers said the high inflation with continued devaluation has left no option for the banks but to invest in the risk-free government papers.

The government borrowed the money at almost 22pc on Wednesday. This costly money would overload the government with debts and the domestic debt servicing would get the major share in the next budget.

At the same, the uncertainty about interest rates is still there in the financial sector. The increasing inflation could further push the State Bank to jack up its policy rate and this was the reason why the banks invest the highest amount in three-month papers.

The government accepted the highest amount of Rs613.2bn for 3-month papers at 21.99pc against the bids of Rs892bn.

The government raised Rs3.75bn and Rs39.3bn for six- and 12-month papers at 21.96pc and 21.97pc, respectively.

The government also raised Rs49.3bn through non-competitive bids making the total Rs705bn.

The government raised Rs40bn for 5 years through Pakistan Investment Bonds (PIBs) and Rs52.7bn for three- and two-year PIBs collectively.

Published in Dawn, May 4th, 2023