Government aims to raise Rs6.295tr in T-bills, bonds auctions

KARACHI: The government plans to borrow Rs6.295 trillion from banks through the sale of treasury bills and bonds from September to November to finance the budget deficit.

According to the auction target calendar issued by the State Bank of Pakistan on Tuesday, the government aims to raise Rs3.475 trillion through short-term paper or Market Treasury Bills auctions with maturities of three, six, and twelve months.

The government also plans to sell fixed and floating rate Pakistan Investment Bonds (PIBs) with maturities of two, three, five, and 10 years to borrow Rs2.820 trillion from commercial banks.

The government’s heavy reliance on domestic borrowings is due to high gross financing needs, ongoing budget deficits, low revenue collection, increased interest payments and limited external funding.

The first quarter of the fiscal year 2025, has almost passed without the cover of the 37-month-long, $7 billion loan programme signed in July between the International Monetary Fund and Pakistan.

The government is looking into different ways to fill the external financing gap, which is essential in securing the final approval for a loan from the IMF. However, there has been no confirmation of any fresh financing to bridge the external funding gap.

The government’s domestic debt in July increased by 22.2 per cent year-on-year to Rs47.697 trillion. The debt saw a 1.1 per cent rise on a month-on-month basis. Meanwhile, the SBP’s data showed that the country’s external debt decreased by 3.7 per cent to Rs21.907 trillion in July.

The commencement of a monetary easing cycle may offer some relief to the government in terms of the cost of domestic debt servicing. Surveys conducted by various brokerage houses suggest that the State Bank of Pakistan may cut interest rates by 100-200 basis points at its upcoming monetary policy meeting on September 12, driven by August's single-digit inflation reading of 9.6 per cent.

The SBP has already cut policy rates by 250 bps to 19.5 per cent in its previous two meetings.Figures released by the SBP on Tuesday showed a decline in the amount borrowed by the government from banks. The government borrowed Rs660 billion from banks between July 1 and August 30, as opposed to Rs1.584 trillion during the same period a year earlier.

In the first two months of the current fiscal year, there was no fresh borrowing from the private sector, despite the fact that the economy stabilized, and the cycle of monetary easing started.

In July and August of FY25, the businesses paid off Rs309 billion to banks, as opposed to Rs213 billion during the same period last year. Owing to the nearly four-year-long tight monetary policy, banks have come under heavy fire for lending large sums of money to the government at higher interest rates while only making small loans to companies and consumers.