Govt to borrow Rs5 trillion from banks in three months

KARACHI: The government planned to borrow Rs5 trillion from banks in three months (May-July) to bridge gap in revenue and expenditures, the central bank’s auction calendar showed on Monday.

The government planned to raise Rs4.1 trillion through borrowing from market treasury bills and Rs900 billion from Pakistan investment bonds (PIBs) by the end of May.

The State Bank of Pakistan would sale Rs375 billion worth of three-, five- 10-, 15-, 20-, and 30-year fixed rate PIBs and Rs210 billion worth of five, and Rs210 billion worth of three-year floating rate PIBs. It would also auction Rs105 billion worth of a two-year floating rate PIB in the same period. The latest auction calendar showed the government wants to boost supply of long-term papers to meet its funding requirements, which is evident from the fact that it has increased the auction targets (amount) for the floating rate PIBs.

Banks fulfill the large part of the government domestic financing requirements. The government sticks to its commitment of zero borrowing from the central bank and mobilised funds through commercial banks and National Savings Scheme to finance the budget deficit.

The government raised Rs1.4 trillion net financing in the first half (July-December) of the current fiscal year. It raised Rs450 billion from the privatisation, external grants and borrowings.

The fetched amount through domestic borrowing was Rs1.040 trillion in July-December FY2021.

The fiscal deficit as percentage of the GDP stood at 3.5 percent (Rs1.603 trillion) in July-February 2021, compared with 3.7 percent (Rs1.613 trillion) in the same period of last fiscal year.

The World Bank expects the budget deficit to remain elevated at 8.3 percent of GDP this fiscal year. The International Monetary Fund (IMF) projected Pakistan fiscal position to remain under strain this fiscal year with budget and primary deficit at 7.1 percent and 1 percent of GDP respectively and debt levels staying elevated at 87.7 percent.

However, the IMF said the maturity structure of Pakistan’s public debt has improved, and it is poised to improve further with the authorities’ multi-pronged efforts, in turn lowering the gross financing need (GFN) in the medium term.

The FY2020 GFN remained below the previously projected level due to a lower fiscal primary deficit than assumed in the RFI approval, and lower interest payments and amortizations resulting from the Debt Service Suspension Initiative (DSSI).

The GFN is expected to further decrease in FY2021 thanks to the extension of the DSSI and the authorities’ successful efforts in lengthening the maturity profile of domestic debt, it said.

“With SBP financing no longer available, the government has managed to secure ample financing primarily from domestic commercial banks, through the issuance of short-term T-Bills and long-term PIBs denominated in domestic currency,” it said in in a latest report.