KARACHI: By selling T-bills at auction to commercial banks, the cash-strapped government was able to borrow Rs558 billion, 2.5 times more than the pre-auction objective of Rs225 billion. This increase indicates that public spending is rising, in part due to the high cost of commercial financing.
A portion of the substantial borrowing amount, totaling Rs130 billion, is intended to settle maturing commercial debt this week. The remaining funds may be utilized to control the government’s increasing spending.
In the course of the auction, the banks made financing offers that were 4.4 times more than the government’s aim of Rs225 billion, or Rs994 billion, indicating that banks have plenty of liquidity. They are charging a greater cost of borrowing in spite of this.
Despite the cut-off yield (rate of profit) on six-month paper (T-bill) increasing by 101 basis points to 21.40% in Wednesday’s auction from 20.39% in March 20, 2024, the finance ministry has managed to acquire a sizable amount of financing. Experts in finance were taken aback by banks raising the cost of lending to the government, which is severely short of cash. This was particularly true in light of the expectation that interest rates would drop starting in April 2024.
The most recent data indicates that after 37 months, Pakistan’s real interest rate—that is, the current interest rate less inflation—has moved into positive territory, with the country’s monthly inflation rate falling to 20.3% in March. Notably, at 21.66% and 20.90% for three- and six-month papers, respectively, the finance cost did not change.
According to the breakdown of the auction statistics, the government has raised the most money—Rs223 billion—by selling 12-month notes at the yield cutoff of 20.90%. Given the likelihood of an interest rate reduction, banks favored locking in investments at current rates.
The government also raised an additional Rs188.5 billion by selling three-month T-bills at a yield decrease of 21.66%. With a cut-off yield of 21.40% on six-month T-bills, it purchased an additional Rs143.4 billion.
