Govt raises Rs518bn through T-bills

On Wednesday, Pakistan's government successfully raised Rs518 billion through the sale of treasury bills (T-bills) via both auction and non-competitive bids. The highest cut-off yield secured by investors was approximately 12 percent. According to the State Bank of Pakistan (SBP), commercial banks submitted bids totaling Rs2.192 trillion, but only Rs237.6 billion was raised through the auction. Notably, the government raised a higher sum of Rs280.3 billion from non-competitive bids compared to the auction.

This increase in non-competitive bids may be attributed to provincial governments, who contributed up to Rs200 billion for three-month T-bills. In total, the government raised Rs518 billion through both auction and non-competitive bids, with Rs118.7 billion generated from auction for three-month T-bills and Rs230.8 billion from non-competitive bids for the same period.

The high level of bids, totaling Rs2.19 trillion, demonstrates the banks' inclination to deposit their maximum liquidity in risk-free government securities due to the perceived riskiness of lending to the private sector in the current economic climate.

The private sector's investment options are limited as they primarily rely on borrowing from banks for working capital and short-term financing. Consequently, banks and the corporate sector could only invest 11 percent of their bids, leaving ample liquidity. However, the private sector finds the interest rate excessively high for long-term borrowing.

The government offered a 12-month T-bill rate of 11.99 percent and accepted Rs52.6 billion, while the lowest rate of return was 11.46 percent, with Rs38 billion raised for a one-month T-bill.

The SBP emphasized in its monetary policy statement that stability is more important than economic growth. Policymakers opt to maintain high interest rates to curb inflation, which could otherwise compromise their policy objectives. Pakistan has experienced low economic growth for the past three years, leading to increased poverty and unemployment.

This has compelled hundreds of thousands of young and skilled individuals to migrate abroad in search of employment. The government appears content with this situation, as it believes that higher remittance inflows would result, with a target of $44 billion for the fiscal year 2027 (FY27) set.