KARACHI: The government plans to borrow Rs6.175 trillion from banks through Treasury bills and bonds between August and October, a move that reflects its increased reliance on local markets to finance the budget deficit amid limited access to external financing.
The government aims to raise Rs3.675 trillion through T-bills with maturities of one, three, six and 12 months. Additionally, it plans to sell fixed- and floating-rate Pakistan Investment Bonds (PIBs) with maturities of two, three, five, 10 and 15 years, seeking to borrow Rs2.5 trillion from commercial banks, according to the auction calendar issued by the State Bank of Pakistan (SBP) on Tuesday.
Saad Hanif, head of research at Ismail Iqbal Securities, said that the government has set ambitious domestic borrowing targets due to its increasing dependence on local markets to cover the fiscal deficit amid constrained external financing. He also mentioned that the tenor mix indicates a preference for longer-term instruments, with significant issuance planned for six- and 12-month T-bills, as well as five-year and ten-year PIBs. This signals the government’s intention to mitigate rollover risk and capitalise on current rate levels before a potential easing cycle begins.
“There is a 10-15 per cent rise in domestic borrowing targets that is aligned with a 36 per cent YoY jump in gross revenue receipts (Rs16.8 trillion) and a 15 per cent increase in total expenditure (Rs17 trillion), yet the fiscal deficit remains high at Rs6.2 trillion, or 6.9 per cent of GDP,” Hanif said.
“Despite a strong primary surplus of Rs2.7 trillion, higher mark-up payments (up 29 per cent YoY to Rs8.9 trillion) continue to pressure the budget,” he added.The heavy reliance on longer-tenor PIBs and high T-bill targets, alongside consistent SBP open market operations injecting over Rs10-11 trillion on a rolling basis, underscores the government’s dual strategy: lock in rates before a possible monetary easing cycle while keeping liquidity flowing in the interbank to support rollover risk, according to Hanif.
This highlights the growing dependence on commercial bank financing in the absence of SBP borrowing, a key IMF structural benchmark.Last week, the SBP kept its policy rate unchanged at 11 per cent, citing concerns about inflation risks. Since June 2024, the central bank has reduced its benchmark interest rate by a total of 1,100 basis points (bps), lowering it from a record high of 22 per cent as inflationary pressures eased.
