Govt raises Rs35.74bn via Ijara Sukuk auction

KARACHI: The government on Thursday raised Rs35.74 billion through the auction of fixed and variable rates Government of Pakistan (GIS) Ijara Sukuk to help plug the budget gap.

The auction target for the Ijara Sukuk was Rs50 billion.

Due to a widening budget deficit, and rising markup payments on domestic debt amid high interest rates, the government is heavily dependent on bank borrowings to fund its spending needs. On the other hand, it also uses the Pakistan Stock Exchange (PSX) to conduct local currency Sukuk auctions to raise funds. The government seeks to expand and broaden the pool of potential investors for its debt by utilising Shariah-compliant securities.

In contrast to conventional interest-based Treasury bills and Pakistan Investment Bonds, the government is diversifying its funding sources and reducing considerable debt costs with the successful issuance of Sukuk through the local bourse. Along with this, there appears to be a shift towards Shariah-compliant financing, after the Federal Shariat Court's directive to remove Riba/ interest from the financial system by December 2027.

The government successfully launched a one-year Sukuk at the Pakistan Stock Exchange, the first auction was held in November 2023, raising lower-cost debt from non-bank and retail investors.