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Saturday January 28, 2023

Govt to borrow Rs4.8trln from banks in 3 months

March 07, 2021

KARACHI: The government will borrow Rs4.8 trillion from the banking sector in next three months to reduce the fiscal gap, according to the central bank’s latest data.

The government aimed to raise Rs4 trillion through market treasury bills and Rs825 billion from Pakistan Investment Bonds up to the end of May, according to the auction calendar of the State Bank of Pakistan (SBP).

Despite apparent reliance on short-term treasury bills, analysts said the government’s debt strategy shows that it wants to borrow more from long tenor papers, especially by focusing on floating rate PIBs, and sukuk to meet its spending requirements. This will help reduce the cost of borrowing of the government in times to come, they said.

“The target for treasury bills is slightly higher than the maturity amount. For PIBs this delta is higher which is healthy and points towards government's increasing inclination towards longer tenor which is likely because of the IMF,” said Saad Hashemy, executive director at BMA Capital.

The International Monetary Fund (IMF) last month resumed $6 billion loan program for Pakistan after one year break.

The SBP said it will hold fortnightly auctions for three-, six- and 12-month treasury bills. Rs375 billion would be raised through three-, five- 10-, 15-, 20-, and 30-year fixed rate Pakistan Investment Bonds, Rs180 billion from five-year and Rs180 billion from three-year PIBs on floating rate. The State Bank will also auction Rs90 billion worth of a two-year floating rate PIB in the period under review.

The government raised Rs1.49 trillion net financing in the first half (July-December) of the current fiscal year of 2020/21. It raised Rs450 billion from the privatisation, external grants and borrowings. In the first half, domestic borrowing fetched the government Rs1 trillion.

Analysts said the government’s objective during the current half of this fiscal year is to lengthen the average time to maturity of its securities. It also wants to increase the proportion of shariah-compliant debt.

The government’s strategy is likely to raise more debt through PIBs and sukuks instead of T-bills. It is likely to adhere to auction targets within permissible limits.

The government is expected to give focus to the greater issuance of fixed-rate securities at reasonable rates and spreads. It could continue to issue shariah-compliant securities.

The budget deficit increased to Rs1.4 trillion in July-December of the current fiscal year. The deficit as a percentage of GDP stood at 2.5 percent.

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