Govt plans to borrow Rs7.99tr via T-bills, bonds in 3 months

KARACHI: The government aims to borrow Rs7.99 trillion through treasury bills (T-bills) and bonds in April-June to meet its high financing needs.

The Market Treasury Bills with maturities of three, six, and twelve months would be used for the bulk of the expected borrowing for the months of April through June. According to the auction calendar released by the central bank on Monday, the government will raise Rs6.400 trillion through the short-term paper auctions. T-bills valued Rs5.573 trillion will mature between April and June.

The sale of Pakistan Investment Bonds (PIBs) with fixed and floating rates will allow the government to borrow Rs1.140 trillion. The government intends to raise Rs90 billion through the sale of fixed-rate Sukuk and Rs360 billion via the auction of Ijara Sukuk with variable rental rates.

The government heavily relies on commercial banks to meet its higher funding needs due to dried foreign inflows amid delay in the International Monetary Fund (IMF) programme.

Pakistan’s public debt increased 15 percent to Rs55 trillion in the seven months of the current fiscal year. At the end of January, the domestic debt jumped by 25 percent year-on-year to Rs34.255 trillion. The government’s domestic debt rose by 10.36 percent to Rs34.2 trillion in July-January FY2023.

The government recklessly borrows from commercial banks at any rate that is feasible. Commercial banks dump government debt documents in the SBP's discount window, add their own profit margin to the discount rates, and lend to the government under the guise of the sovereign debt guarantee of lending.

The government raised funds at a historic high rate of 22 percent via the T-bill auction held on March 22. The government acceptance of offers at higher levels may be due to two factors, either the government intentionally gave a signal to the market and IMF that the rate hike is coming by picking up the amount at higher levels or it had no option but to raise funds as there is no other avenue for borrowing.

The cost of government debt will rise in line with expectations that the next policy review, which is scheduled on Tuesday (tomorrow), will result in a substantial hike in interest rates.

Analysts expect the State Bank of Pakistan will raise the policy rate by 200 basis points to 22 percent at its upcoming monetary policy review. The factors that could influence the upcoming monetary policy decision are a continued delay in the resumption of the IMF programme and soaring inflation.