Govt plans Rs3 trillion debts from banking sector

KARACHI: Government on Friday unveiled a plan to borrow more than Rs3 trillion from banking sector to finance budget and pay for maturity during the next two months, a major proposed debt accumulation since the signing of IMF’s reforms program last year that restricts credit from the central bank.

The State Bank of Pakistan (SBP) planned to borrow Rs2.6 trillion from banks through short-term bills, having maturity of up to one year and Rs320 billion on fixed interest rate and Rs150 billion on floating interest rates through long-term instruments, having maturity of 20 years, during the March-May period.

The government has to pay back Rs2.3 trillion and Rs389 billion on account of maturing short- and long-term debts, respectively.

In July last year, the International Monetary Fund (IMF) agreed to lend $6 billion to Pakistan to help it put off balance of payment crisis. The reforms program stipulates that the government phases out its lending from the central bank to finance budget deficit. The central bank’s independence is believed to improve monetary policy framework and remove obstacles to inflation targeting goal.

Auctions of short-term bills will be settled on 26 March, 9 April, 23 April, 7 May, and 21 May, according to the auction calendar. The maturities of 3-, 6- and 12-month market treasury bills are scheduled from 4 June, 2020 to 20 May, 2021. A market treasury bill auction of Rs350 billion has already been held on 11 March. The auction calendar further showed that the government planned to hold bidding of Pakistan Investment Bonds (PIBs) on 15 April and 27 May.

The proposed PIBs target factors in the banking sector’s low interest in long-term debts as the interest rate is still hovering around a decade-high level and seen ratcheting down ahead.

Though the government slightly eased monetary policy recently, the rate cut was lower than the market consensus expecting a reduction of 100 to 200 basis points.

The SBP cut the benchmark interest rate by 75 basis points to 12.5 percent amid consumer inflation that eased to 12.4 percent in February from 14.6 percent in January.

The government revised up fiscal deficit to 7.5 percent from 7.2 percent in the current fiscal year of 2019/20 as it is struggling to improve tax collection in the ailing economy.

The Federal Board of Revenue (FBR) faced a massive shortfall of Rs325 billion in the first eight months of the current fiscal year. The FBR collected Rs2.7 trillion during the July-Feb period, compared to the target of Rs 3 trillion. In February, revenue shortfall widened Rs107 billion in February 2020. With the existing pace, the revenue shortfall might rise to more than Rs700 billion till June-end compared with the annual target of Rs5.2 trillion.