Govt plans to borrow Rs5.52tr domestic debt in Dec-Feb

KARACHI: The government is set to borrow Rs5.52 trillion through treasury bills and bonds in December 2022-February 2023 to help finance the country’s chronic budget deficit.

The majority of the planned borrowing for the months of December to February would be done through Market Treasury Bills with maturities of three, six, and 12 months.

The government will raise Rs4.325 trillion via the short-term paper auctions, according to the auction calendar issued by the central bank on Tuesday.

Between December and February, T-bills worth Rs4.281 trillion will mature.

The sale of Islamic bonds and Pakistan Investment Bonds (PIBs) with fixed and floating rates will allow the government to borrow Rs1.195 trillion.

The State Bank of Pakistan (SBP) would auction fixed-rate PIBs worth Rs525 billion and floating-rate PIBs worth Rs370 billion. In addition, the SBP would sell Rs210 billion five-year Government of Pakistan Ijara Sukuk (GIS) with a variable rental rate and Rs90 billion worth of fixed-rate GIS.

Pakistan’s public debt already increased 24.5 percent year-on-year to Rs50.151 trillion in October.

The debt stood at Rs40.279 trillion as of October 31, 2021. It rose by 1.51 percent month-on-month. The debt was Rs49.401 trillion in September. It stood at Rs47.784 trillion at the end of June 2022.

To meet its borrowing needs due to a lack of external financing, the government significantly relies on commercial banks.

A major portion of the public debt is sourced from the domestic debt, which stood at Rs32.501 trillion in October, compared with Rs26.467 trillion a year ago.

The yields on T-bills increased at an auction held on November 30 due to 100 basis points (bps) hike in the interest rates by SBP. Last month, the central bank hiked the policy rate to 16 percent

Analysts said the fresh borrowings from Sukuk would provide more deployment avenues to the Islamic banking industry. The finance ministry successfully issued Sukuk of Rs133.9 billion (approx. $608 million) in the reopening of the Pakistan Ijarah Sukuk issue during the auction held in November 2022.

The Government of Pakistan Ijarah Sukuks is an important instrument for the Islamic financial system as they allow the government to raise funds in a Shariah-compliant manner without the involvement of interest.

The Sukuk also resulted in a saving of at least 100 bps in terms of a lower rate when compared to interest-based PIBs of the same tenure thus resulting in annual savings of approximately Rs1.33 billion to the government.