There suddenly seem to have emerged a plethora of variables for the layman to understand the direction that the fiscal deficit funded by government borrowing is taking. Since time and beyond, analysis has been silent with respect to tallying the government’s accounts, reported in the celebrated budget, with what happens each quarter. How can one, many would argue, take an independent view when there is no transparency? The tax collection break-up and consolidated numbers last updated on FBR’s website belong to the third quarter of last fiscal year. Why must one rely on government announcements, ever changing as they are, if there is to be any ‘just’ accountability of sorts?
Diverging from this lament briefly, the ongoing quarter’s T-Bills’ borrowing trends seem to obfuscate the viewer; has Denice turned a new leaf or is he plotting a larger menace? While enlisting the ongoing quarter’s T-Bill targets, SBP had announced that the government intended to borrow Rs63b in addition to the rolling over maturing amount. Lo and behold! It turns out that our dear government suddenly wants reduce its outstanding stock of T-bills, Rs125b in the auction on 19th Oct while taking up less than a hundred billion of additional debt in later auctions. In the meanwhile, our risk-disliking financial system continues to vigorously participate in these auctions hoping the government will abide by its pre-announced targets.
An obvious, allegation hurling explanation would be that the government seeks to shift its borrowing bulk into a lower interest rate pitch, an expected move that will be verified next week. With no substantive foreign inflows in the purview, one would not expect that an additional (approximate) Rs100b in the ongoing quarter would embolden the government return about half of the amount to the financial sector.
Then come aboard other developments. Earlier this month, half of the debt held by banks under the pretext of circular debt, approximately Rs200b, has been converted in to 12mo T-Bills. This indirectly implies that the net increase government’s stock of T-Bills would arrive at twice the target amount announced for the ongoing quarter. The remaining amount has been conveniently shifted to 5-year PIBs. Who knows whose hands the fiscal machinery would have landed in by then!
The resolution of the circular debt issue invokes a great deal of interest on its own. While it would relieve the government of intense political pressure, songs of joy would be easy to listen to on the banking square; risk weighted assets would decline as TFCs converted into PIBs would be shifted into the investments book basically accorded with zero risk. Currently, risk weighted assets stand at Rs4,724b and can be provisionally expected to decline by at least Rs100b. Some respite will be thus also be realised on the capital adequacy ratios (CAR) of banks exposed to the power sector, in addition to the paltry benefit of annulled NPLs in the power category standing at about PKR 22bln in Mar-11.
In the way of some more government bashing (and reverting to the original lament), all conjectures and estimates such as those listed in this column would be much aided, if for once, some transparency and public inclusion would be exercised by those sitting in the finance division. The only corroborated evidence available to analysts in form of what was said by whom. If the current government is the people’s only well-wisher since times and beyond then on the eve of re-election it should provide a clear and legible account of all that it has done for the people, if it has done any thing.
After all, their proud proclamation of democracy should imply a little more than just grave problems for the people and by the people.
The writer is an economic researcher and freelance financial journalist. She can be reached at [email protected]