Govt to raise Rs225bln through Ijara Sukuk auction in three months

KARACHI: The government is set to raise Rs225 billion through the auction of five-year Islamic bond, a move that could stimulate trading in Shariah-compliant debt securities and help plug budget gap amid spread of COVID-19 in the country, the central bank said on Monday.

The State Bank of Pakistan (SBP) has issued the auction calendar for issuance of government of Pakistan sovereign Sukuk based on Ijarah against Jinnah International Airport Terminal for five years.

Pre-auction target is set at Rs75 billion for April, while similar amounts are set for May and June 2020.

The latest issuance is the part of Rs700 billion worth Ijara Sukuk. The federal cabinet approved the launching of this bond early this month. Sources said the auction size was very low, keeping in view the government’s funding requirements in the wake of crises created by COVID 19.

“It is the best time that the government can easily raise up to 300 billion rupees in one go from the highly liquid Islamic banking sector and this will provide much needed funding to the government who is actively working to provide relief measures for the economy,” a senior banker said.

“The issuance will provide an opportunity to raise funding as per the recent approval of the Economic Coordination Committee to increase share of government Shariah-compliant financing in line with the constitutional requirement of Pakistan, which demand elimination of RIBA from the economy,” he said.

The banker also added that would provide the much needed support to the Islamic banking industry in playing its critical role in financial inclusion of the unbanked population of Pakistan.

The bond would help mobilise excessive funds available with Islamic banks and help the government to diversify its debt, the banker said. Ijara Sukuk worth around Rs71 billion would mature in June.

Last week, the World Bank, in a report said, the economic output was expected to contract sharply in Q4FY20, bringing overall FY20 growth to (negative) 1.3 percent.

In the next fiscal year, GDP growth would likely rise slightly to 0.9 percent, followed by 3.2 percent in FY22. These developments have put pressure on Pakistan’s fiscal position, as tax collection is being adversely impacted, while spending needs are increasing. Analysts expect the budget deficit to shoot up to 9.0 percent of gross domestic product in the current fiscal year and subsequently clock in at 8.0 percent of GDP in the next fiscal year.