Govt limiting bank borrowing

THE State Bank's announcement that the government would sell Rs1150 billion treasury bills during April-June 2011 confused some people not well-versed with technicalities of T-bills auctions. They are reported to have interpreted it as if the government would borrow this much amount to finance budget deficit. "But that is not the case. We rather plan to borrow least from banks during this quarter," a source close to the ministry of finance told Dawn. "The auctioning target of Rs1150 billion has been set against T-bills maturity of almost the same amount—Rs1139 billion to be exact—in April-June," he explained. "So, on net basis we actually want to raise only Rs11 billion." Money market dealers of local and foreign banks contacted by this writer said a nominal net government borrowing target along with the SBP decision to keep its policy rate unchanged had led them to hold a stable outlook for interest rates. "A net targeted borrowing of Rs11 billion through T-bills means actual borrowing may go up to Rs30-40 billion—but not more than that," conjured chief money market dealer at a foreign bank. "Liquidity levels are such that we can make this much fresh investment in treasury bills—and also continue to invest in long-term Pakistan Investment Bonds (PIBs) and Ijara Sukuk. The market is expected to remain liquid enough also for meeting private sector credit requirements." According to the SBP announcement, Rs45 billion worth of three-year Ijara Sukuk and Rs35 billion worth of PIBs would also be auctioned during April-June. Bankers say that the target for net government borrowing through PIBs comes to less than Rs10 billion because Rs25 billion PIBs sold earlier would mature during April-June. "And that would be in addition to maturity of interest payments on PIBs of around Rs16 billion," disclosed a local bank treasurer. In case of the three-year Ijara Sukuk whose auctioning started in September 2008, the first maturity falls in September this year. "What encourages us to go for lesser borrowings from banks is that the National Saving Schemes are now doing well," said an official of the ministry of finance. Government borrowing through these schemes rose in January and February after remaining flat or depressed in the first half of the fiscal year. Cumulative investment in NSS in January-February 2011 swelled 80 per cent to Rs61.4 billion from Rs33.7 billion in the same period of 2010. Officials of Central Directorate of the National Savings say they anticipate still larger investments in the NSS after their decision to continue offering high interest rates on them during this quarter. Bankers said that benchmark KIBOR of various tenures remained stable during the week to April 1—the first week after the SBP decision to keep policy rate unchanged at 14 per cent for April and May. They said that exchange rates also remained stable during the week as a gush of export earnings and home remittances held the rupee firm despite quarter-end external debt servicing. Foreign exchange reserves shot up from $17.5 billion on March 19 to a new all-time high of $17.95 billion on March 26 providing psychological support to the rupee. The rupee closed at 85.33 a dollar on April 1 down just 14 paisa within the first full week after the SBP decision to re-allow forward foreign exchange buying by importers. Bankers said they witnessed no big demand for forward forex cover though some multinationals made queries about it. "The pro-rupee sentiment is so high that national, multinational companies and import houses continue to maintain a stable exchange rate outlook till end of June," remarked a local banker. The SBP State Bank Chief Spokesman Syed Wasimuddin said that forex reserves were up primarily because of strong inflows of exports and remittance dollars. Ministry of Finance sources hinted that there were some official inflows of foreign exchange as well but did not specify them. Senior bankers said they had noticed some increase in inflows of foreign investment during March but data for the month are yet to come in. In eight months to February 2011 overall foreign investment rose to $1.23 billion from $969 million in the year-ago period.Portfolio investment was up while some fall was recorded in foreign direct investment.