Government to raise Rs7.1trln through T-bills, bonds in June-August

KARACHI: The State Bank of Pakistan will auction Rs7.1 trillion worth of Market Treasury Bills (MTBs) and Pakistan Investment Bonds (PIBs) in June to August 2019 to plug budget holes, the central bank’s event calendar published on Tuesday showed.

The central bank would sell Rs6.40 trillion of three-, six and 12-month debts through government treasury bills. The SBP also plans to offer Rs300 billion worth of three-, five-, 10 and 20-year PIBs.

Moreover, the SBP would auction Rs400 billion of 10-year floating rate PIBs. The government has persistently borrowed from the banking system for deficit financing on top of borrowing cash for the development related projects.

The decline in tax revenue and higher current expenditures mainly due to interest payments and security spending drove the budget deficit up to 5 percent of gross domestic product (GDP) during July-March period of fiscal year 2018/19 (FY19).

Analysts said the government’s revenue mobilisation target for the next fiscal year seems overly ambitious.

“The 9MFY19 fiscal deficit of 5 percent exceeds our year’s target of 4.9 percent. The addition of our debt obligations in 4QFY19 makes it likely that the deficit surpasses 7 percent, again in line with our expectations,” said an analyst at Taurus Securities.

The Taurus analyst further said, “Going forward, the IMF s (International Monetary Fund) only official statement following our staff-level agreement explicitly mentions a primary deficit target (0.6 percent of the GDP) for FY20 which we are poised to miss”.

Fitch Rating in a report said the fiscal deficit would remain high at 7.1 percent of gross domestic product (GDP) by the end of next fiscal year 2019/20.

“Meeting revenue targets in the context of sluggish growth could prove challenging, but the government is likely to lower expenditure relative to the budget to meet the primary deficit target,” Fitch report added.

Pakistan’s public debt increased by 16 percent or Rs3.867 trillion in 10 months of the current fiscal year, the central bank’s data showed on Wednesday, as financing of hefty budget deficit and rupee devaluation accumulated much of this debt.

The government announced in the budget 2019/20 document that borrowing from the State Bank was inflationary; the government would no longer use this facility with effect from July 1, 2019. Analysts said this could make loans more expensive for the government, while there’s also a possibility of crowding out private sector borrowers.

The government will now borrow from market rather than SBP to prevent inflationary pressure on economy, the analyst added. The inflation is projected in the “budget in brief” at 11-13 percent for the next fiscal year.