Govt to borrow Rs10.66tr in Q2 through domestic debt market

KARACHI:The government plans to borrow Rs10.66 trillion from the domestic debt market in the second quarter of the fiscal year 2023/24, mainly through short-term treasury bills, to finance its budget deficit.

According to the central bank’s auction calendar, the majority of the planned borrowing for the months of October through December is expected to be accomplished through Market Treasury Bills with maturities of three, six, and twelve months.

The government would raise Rs7.905 trillion through short-term paper auctions, according to the central bank's auction calendar, which was released on Tuesday.

The Pakistan Investment Bonds (PIBs) with fixed and floating rates will allow the federal government to borrow Rs2.76 trillion from commercial banks.

In addition to meeting its spending needs, the government borrows money to pay for the servicing of its domestic debt. In FY2024, T-bill maturities totaling Rs8.948 trillion will occur between October and December.

The rise in the government’s borrowing requirements from banks is due to higher interest rates, rising expenditure and lack of availability of foreign funding. The government is compelled to raise its domestic debt due to a growing budget deficit caused by low revenue and high expenditure demands. The government had to borrow a lot of money from the banks as a result to cover its funding needs.

The bank's investment strategy has seen a major shift from short-term to medium- to long-term securities in order to benefit from the attractive returns and meet the government's growing borrowing needs.

At the end of June, banks had outstanding investments in Pakistan Investment Bonds of Rs12.430 trillion, up 39 percent over the same period last year. 60 percent of the overall PIB investments were made by banks, according to data.

But during the same period, banks invested Rs5.510 trillion in Market Treasury Bills, a 5 percent decrease from a year earlier. 26 percent of all bank investments in government securities were made in T-bills. Sukuk (Islamic bonds) investments increased by 37 percent to Rs2.931 trillion.

The total amount of funds invested by banks in government papers rose by 24 percent to Rs20.870 trillion.

The growth in demand for floating-rate securities has resulted in higher yields, which has raised the government's interest costs. To find a balance between luring in investments and upholding budgetary prudence, the government must carefully manage its borrowing strategy.

The State Bank of Pakistan left the policy rate unchanged at 22 percent in its meeting on September 14. It has hiked interest rates by a cumulative 15 percentage points to 22 percent since September 2021.