Govt plans to raise Rs5.9trln for funding budget deficit

KARACHI: The government aims to raise Rs5.9 trillion from auctions of market treasury bills (MTBs) and Pakistan investment bonds (PIBs) in June to August 2021 to fund a budget deficit, the auction target calendar issued by the central bank showed on Monday.

The amount is higher than Rs5 trillion the government wanted to fetch in May-July period. Between June and August, there will be seven auctions for three-month, six-month and 12-month T-bills, with the target amount fixed at Rs5 trillion.

The government also plans to raise Rs900 billion from the auctions of PIBs in the period under review. The State Bank of Pakistan (SBP) would sell 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 PIBs. The government has secured ample financing from commercial banks through the issuance of short-term T-Bills and long-term PIBs denominated in domestic currency to finance its budget deficit after its agreement with the International Monetary Fund (IMF) that restricts borrowing from the central bank for deficit financing.

PIBs are popular among foreign investors as well thanks to their lucrative yields at a time of low interest rates worldwide. The government’s domestic debt rose to Rs25.552 trillion as of March from Rs22.477 trillion a year ago.

Pakistan’s fiscal deficit clocked in at 3.5 percent of GDP in the nine months of this fiscal year, compared with 3.8 percent of GDP in the same period last year. The fiscal deficit is 0.6 percentage points lower than last year, despite higher interest payments and Covid-related expenses.

The IMF in one of its flagship publications – Fiscal Monitor, released in April projected Pakistan’s fiscal position to remain under pressure in the current financial 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 Fund estimated the fiscal deficit for next year (FY 2022) at 5.5 percent and declining further to 3.9 percent in FY 2023.