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Record Rs594bn borrowing from SBP in 45 days
KARACHI: The PML-N government borrowed record Rs594 billion from the State Bank of Pakistan (SBP), which is highly inflationary, during the first 45 days of this fiscal year (2013-14).
The outgoing PPP-led coalition government had changed its borrowing pattern during the last three years of its tenure and kept focus on scheduled banks after intense criticism by economists, analysts and even the State Bank over large borrowing from the SBP.
But massive borrowing from scheduled banks crowded out the private sector that ultimately hurt economic growth. Banks liquidity was siphoned off and private sector net borrowing fell to zero at the end of last fiscal year.
Now the PML-N government has reversed entire borrowing pattern and resorted to borrowing from the SBP. The 45 days borrowing from the central bank is record high. It rose to Rs594bn against a net debt repayment of Rs199bn during the same period of last year.
The previous government did not borrow to such a large extent even from the scheduled banks during the first 45 days of last fiscal year. The borrowing from scheduled banks was limited to Rs261bn. Money market experts said retiring of scheduled banks debt by the government has created excess liquidity and State Bank has been mopping up liquidity every now and then to keep the market in balance.
The government is trying to create a bigger market for selling treasury bills and is in contact with stock market and corporate sector. The finance minister held a detail meeting this month in Karachi for this purpose.
The scheduled banks, having excess liquidity, find it difficult to invest in government papers while the State Bank selling less treasury bills than maturity of the papers. The scheduled banks have been investing about 90pc of their liquidity in government papers that kept banks profitable.
The scheduled banks invested Rs3.32 trillion in government papers till the end of June 2013 while Rs960bn were invested in FY-2013 alone. The net debt retirement of the private banks was Rs400bn during the first 45 days of the new government.
Investment in government papers provided additional advantage of being risk free helping banks to improve their balance sheets with minimum non-performing loans. The government’s effort to diversify sources for selling treasury bills could further reduce banks’ profitability with lower investment.
However, it would help private sector get banking loans at cheaper rates in the presence of excess liquidity in banks. The decline in the policy interest rate by three to nine per cent during a year has slashed profits of banks as they rely heavily on investing in government papers.
The scheduled banks, having excess liquidity, find it difficult to invest in government papers while the State Bank selling less treasury bills than maturity of the papers. The scheduled banks have been investing about 90pc of their liquidity in government papers that kept banks profitable.
The scheduled banks invested Rs3.32 trillion in government papers till the end of June 2013 while Rs960bn were invested in FY-2013 alone. The net debt retirement of the private banks was Rs400bn during the first 45 days of the new government.
Investment in government papers provided additional advantage of being risk free helping banks to improve their balance sheets with minimum non-performing loans. The government’s effort to diversify sources for selling treasury bills could further reduce banks’ profitability with lower investment.
However, it would help private sector get banking loans at cheaper rates in the presence of excess liquidity in banks. The decline in the policy interest rate by three to nine per cent during a year has slashed profits of banks as they rely heavily on investing in government papers.
http://dawn.com/news/1039731
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