KARACHI: The State Bank of Pakistan (SBP) is set to auction Rs4.925 trillion worth of Market Treasury Bills (MTBs) and Pakistan Investment Bonds (PIBs) in the first quarter of 2018 to help the government fund its budget deficit, the central bank said on Monday.
The SBP said it plans to offer Rs4.725 trillion worth of three-, six-, and one-year treasury papers at the auctions to be held during January-March period. The central bank would also sell Rs200 billion of three-, five, 10 and 20 year debt through PIBs.
The targeted amount in the latest SBP auction calendar indicates the government could cover a bulk of the budget deficit from raising money through the local market. Banks have continued to invest in short-term t-bills and have divested from low yielding government bonds.
The SBP’s quarterly review on the banking sector showed that their [banks] overall net investments surged by 1.8 percent during the third quarter of 2017 against decline of 2.5 percent in the same period of the previous year. Banks’ investment in government securities have remained the prime driver behind investments growth.
“Consequently, the share of MTBs (in total net investments) has increased to 52.6 percent in the third quarter of last year from 42.0 percent in 2016 while the share of PIBs in total investments has declined to 35.3 percent, compared with 42.3 percent in July-August 2016,” the SBP said.
The offer-to-target ratio (for PIBs auctions) has declined, which reflects reduced banking sector interest in long-term government securities. The SBP also said higher investments in MTBs can also be seen as a market risk management strategy by banks, owing to expectations of a possible change in direction of interest rates in the future.
The pattern of government borrowing for budgetary financing has been changed. The government has again started relying on central bank financing to cover its spending. The government secured Rs287.2 billion worth of funds from the SBP during July 1-December 22, FY18. However, it borrowed Rs117 from scheduled banks in the same period.
