Govt to sell Rs2.460 trillion debt in July-September

KARACHI: The government aims to sell domestic debt worth Rs2.460 trillion in July-September 2020 to finance the budget deficit, the central bank said on Monday.

The State Bank of Pakistan will auction Rs1.200 trillion of three, six and 12 months debts through market treasury bills, the auction target calendar issued by the SBP showed. Central bank was also set to sell Rs840 billion worth of three-, five-, 10-, and 20-year floating rate Pakistan Investment Bonds and Rs420 billion of fixed rate PIBs. Analysts said managing a higher budget deficit could be a huge challenge for the government in the coming fiscal year. The government was likely to remain dependent on bank borrowing to meet its funding requirements.

The government has estimated borrowing Rs889 billion from banks to finance the budget deficit in the fiscal year 2020/21. The government is estimating a fiscal deficit of 9.1 percent of gross domestic product for the current fiscal year.

However, many analysts expect the deficit could range between 9-10 percent of GDP in FY2020. The government has set a fiscal deficit target of 7 percent of GDP for FY2021 and a primary deficit of 0.5 percent of GDP.

Analysts believe that under these extraordinary tough economic conditions due to the Covid-19 outbreak, containing the fiscal deficit would be a huge juggling task for the government. “We expect revenue collection to remain subdued due to decline in economic activity, while at the same time the government will have to increase its expenditures to revitalise the economy,” an analyst said. The SBP in an emergent meeting last week further reduced the policy rate to seven percent from eight percent. This took cumulative monetary easing to 625 basis points since March.