KARACHI — Banks and corporate investors poured Rs1.385 trillion into Treasury bills (T-bills) during Wednesday’s auction, highlighting a strong appetite for short-term government securities despite no change in interest rates.
The latest auction not only surpassed the government’s target but also raised more funds than were maturing, signaling robust demand for risk-free, short-term investments. Market observers noted that this trend reflects both the abundance of liquidity in the banking system and a cautious approach toward long-term borrowing.
Strong Interest in Longer-Term Bills
Investors showed a clear preference for 12-month T-bills, placing bids totaling Rs556.5 billion. The government successfully raised Rs275.7 billion from this category alone. Shorter-term instruments also attracted significant participation, with Rs73 billion raised from one-month bills, Rs41.3 billion from three-month bills, and Rs23 billion from six-month papers.
Despite strong demand, cut-off yields remained unchanged, indicating that market participants do not anticipate an immediate interest rate cut. Analysts suggest that banks are choosing to lock in liquidity for longer durations, reflecting cautious optimism amid an uncertain economic environment.
Auction Highlights Persistent Funding Needs
The total bids of Rs1.385 trillion far exceeded the auction target of Rs450 billion, while the government raised Rs527 billion against Rs445 billion maturing in the same period. This oversubscription underscores the government’s continued reliance on T-bills to meet funding requirements, as financial institutions prioritize secure investment options amid macroeconomic uncertainties.
Fiscal pressures remain high. In FY25, the government’s interest payments on borrowings reached Rs9 trillion, accounting for nearly half of the total budget of over Rs18 trillion. This significant debt servicing burden limits the funds available for developmental and social programs, placing the government in a delicate balancing act between borrowing and spending.
Revenue Growth vs. Tax Reality
Although revenue collection has steadily increased in recent years, the government maintains that tax compliance remains low. Everyday consumers bear taxes at multiple points in the economy—on goods, services, and consumption—raising questions about the effectiveness of the taxation system.
Experts predict that bank funding will continue to play a central role in the government’s financing strategy. While revenue has improved, it is still insufficient to cover the budget deficit, highlighting the need for prudent fiscal management to prevent excessive borrowing from crowding out critical development spending.
