Karachi: The State Bank of Pakistan (SBP) has sold treasury bills (T-bills) of worth PkR 155.17 bn in an auction held yesterday against total bids of worth PkR 220.57 bn face value.
According to Alfalah Securities Limited, SBP accepted PkR 126.174 bn and PkR 29 bn in 3M and 6M Tbills where the cut-off yields in the 3M and 6M maturities remained unchanged at 11.8742% and 11.942% respectively. The government has targeted to borrow PkR 995 bn in the 4QFY12 through market T-bills to finance its budgetary expenses. Banks on the other hand have continued to show great interest in lending to the government by investing in risk free government securities thus crowding out the private sector credit.
As reported in a local newspaper, official estimates show that fiscal deficit for the 9MFY12 has already reached 4.3% of GDP and is expected to widen to 7% of GDP for the current financial year owing to high expenditure of the PPP-led government and low revenue collection. The International Monetary Fund (IMF), in its country report on Pakistan released in February 2012, had projected fiscal deficit at 6.7% of GDP however it faced severe criticism from the government officials as they presumed that the fiscal deficit would be contained within the targeted limits. Last year, the finance ministry had projected fiscal deficit at 4% of GDP in the budget FY12 based on assumptions that foreign inflows like the Coalition Support Fund (CSF), payment of the remaining USD 800 mn from Etisalat, auction for 3-G licenses and higher exports would materialize during the year however none of the above assumptions have turned out to be pragmatic for the government yet. Country’s economic managers claim that the overall government expenditures would have been under control but more than targeted subsidies to the power sector, debt servicing of both domestic and foreign debt and failure of inefficient Public Sector Enterprises (PSEs) have significantly raised government expenditures despite the fact that expenditures for development purposes have been continuously declining. Therefore, in the absence of a steady source of foreign inflows, borrowing from the banking system is the only option left for the government to finance its budget deficit. Alfalah Securities Limited expects the government would continue to borrow from the banking system without making any compromises to its unnecessary expenses.