Govt to borrow record Rs5.33tr in May-July to plug budget gap

KARACHI: The government plans to borrow a record Rs5.33 trillion from banks through treasury bills and bonds auctions between May and July 2024 to finance its budget deficit, the central bank's auction calendar showed on Saturday.

From May through July, the planned borrowings are expected to be done via Market Treasury Bills (MTBs) and fixed and floating rates Pakistan Investment Bonds (PIBs).

The government will raise Rs2.690 trillion through long-term paper auctions with maturities of three, five, 10, 15, 20, and 30 years, according to the central bank's auction calendar, which was released on Friday.

The government intends to auction treasury bills with maturities of three, six, and twelve months in order to borrow Rs2.640 trillion from commercial banks.

The government's growing funding needs and a lack of external financing are to blame for the increase in the country’s public debt. The rise in markup payments, especially on domestic debt, is a reflection of the government's growing reliance on domestic resources to fund its budget deficit in an environment of rising interest rates.

Pakistan’s total debt and liabilities increased by 11.6 percent to Rs80.862 trillion in the nine months of the fiscal year 2024.

The country’s total debt rose by 12 percent to Rs78.086 trillion in July-March FY24. Liabilities as a whole were Rs4.417 trillion, up 3.7 percent from the year before.The spike in the debt burden demonstrated that managing debt and the rising cost of interest payments with precarious finances is one of the major headaches of the Prime Minister Muhammad Shehbaz Sharif's administration. The government is currently negotiating with the International Monetary Fund's mission for a new long-term loan programme.

The country is expected to finalise the IMF deal by July 2024, totaling $7-8 billion over four years, according to a recent Citibank report.

The end-FY24 debt-to-GDP ratio is projected to decrease markedly, driven by fiscal consolidation and ex-post negative real interest rates, according to the IMF’s latest country report.

“That said, risks to debt sustainability remain acute given very large gross financing needs and the persistent challenges in obtaining external financing, and that real interest rates are projected to become an adverse driver of debt dynamics in the coming years,” it said.

“Provided that program policies are sustained over the medium term and assuming adequate multilateral and bilateral financial support, public debt would remain sustainable and on a downward path.”