Domestic debt worth Rs3.735trln planned in 3 months

KARACHI: The government has plans to sell domestic debt worth Rs3.735 trillion up to the end of February 2021 to meet its borrowing needs for financing the budget deficit.

The State Bank of Pakistan (SBP) on Monday said it would auction Rs2.800 trillion worth of three, six and 12 months debts through market treasury bills in the December to February period. The central bank was also set to sell Rs375 billion worth of three, five, 10, 15 and 20 year fixed rate Pakistan Investment Bonds (PIBs) and Rs420 billion worth of floating rate PIBs.

The SBP would also auction Rs140 billion worth of 2-year PIBs during the period, according to the central bank’s auction calendar. The government's dependence on bank borrowing to fund its budget deficit remains high as it adhered to its commitment of zero fresh borrowing from the central bank in an effort to maintain its fiscal discipline.

It is also paying off maturing debt obligations to the central bank. Resultantly, the share of the SBP in the government’s domestic debt has decreased.

Since, scheduled banks finance the bulk of the government’s funding requirements, their share in total domestic debt is on a rising trajectory. The SBP in a latest monetary policy statement said that higher overall budget deficit due to larger domestic interest payments should taper as the benefits of recent interest rate cuts filter through.

PSDP-releases, which are an important stimulant of economic activity, recorded an increase of 12.8 percent (year-on-year) during the first four months of this year. On the revenue side, despite a fast-tracking of refunds to help businesses during the pandemic, Federal Board of Revenue (FBR) tax collections continued to record positive growth, at 4.5 percent (YoY) in July-October, to come in close to target levels, it said.

The SBP foresees fiscal deficit to be in the range of 6.5 to 7.5 percent of GDP this year, compared with the government target of 7 percent of GDP, with the primary balance also estimated to show a deficit of 0.5 percent.

The government’s domestic debt rose 1.79 percent to Rs23.701 trillion in July-September FY2021. The budget deficit in the first quarter of this fiscal year stood at 1.1 percent of gross domestic product or Rs484 billion, compared with 0.7 percent of GDP or Rs286 billion in the same period last year.

The government posted a primary balance of 0.6 percent of GDP (Rs258 billion) in July-September FY2021. Total revenues fell 1.0 percent to Rs1.479 trillion. Tax revenues declined 2.0 percent to Rs1.122 trillion. However, non-tax revenues increased 3.0 percent to Rs356 billion.