Govt to raise Rs5.7trln from debt issues in Q1FY22

KARACHI: The government has targeted a borrowing of Rs5.725 trillion from domestic market by selling debt securities in first quarter of FY2022 to finance budget deficit, central bank’s auction calendar showed on Friday.

Between July and September, the government will raise Rs4.750 trillion from the auctions of Market Treasury Bills (MTBs), while it also aims to draw Rs975 billion through the sale of Pakistan Investment Bonds (PIBs).

The State Bank of Pakistan (SBP) would sell Rs450 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. The latest auction calendar shows the government wants to attract more funds from PIBs sales but it has not increased the targeted amount to be generated through the auctions of T-bills.

The interest expense for the government remains high, despite the fact that interest rates have come down sharply, mainly because of long-term government borrowings at higher rates via fixed rate PIBs.

The government is estimated to borrow Rs2.417 trillion from banks and Rs1.246 trillion from external sources in FY2022 to plug budget holes. The budget deficit is also estimated to be financed through privatisation proceeds of Rs252 billion.

The government adheres to its commitment of zero fresh borrowing from the central bank so it depends on scheduled banks and nonbanks for its financing needs.

The government will meet its spending requirements through issuing government securities such as T-bills PIBs and Sukuk.

The higher budget deficit, ambitious revenue target and increase in the development spending could increase the government borrowings from banks this fiscal year. The government has allocated Rs900 billion for the federal public sector development programme in FY2022, 38 percent up from the last year. Analysts believe FY2022 will be another difficult year for the government to contain the budget deficit, which it targets at Rs3.420 trillion or 6.3 percent of GDP for this year, compared with revised estimate of Rs3.195 trillion or 7 percent for FY2021.

Analysts expect the budget deficit to be in the range of 7.0-7.5 percent in FY2022, where part of the shortfall will be covered by cut in expenditures, both current and development. Primary deficit is expected to be in the range of 1.0-1.5 percent.