Govt to raise Rs5.30tn in Q4 via treasury auctions

KARACHI: The government aims to raise Rs5.30 trillion through auction of Market Treasury Bills (MTBs), Pakistan Investment Bonds (PIBs), and Sukuk in April-June 2022 to meet its financing needs, State Bank of Pakistan (SBP) said on Friday.

The government would borrow Rs4 trillion from auctions of MTBs, while it also planned to fetch Rs1.30 trillion via sale of fixed and floating rate PIBs, according to an auction calendar released by the central bank.

SBP reported that it would sell Rs300 billion worth of fixed-rate PIBs and Rs350 billion worth of floating rate PIB. It would also auction Rs175 billion worth of three-year and Rs175 billion two-year PIB.

The central bank would also sell Rs225 billion worth of variable rental rate five-year Ijara Sukuk and Rs75 billion worth of fixed rental rate domestic Islamic bonds.

The government raises funds fortnightly by auctioning T-bills, conventional, and Shariah-compliant bonds to plug budget holes, which increases its borrowing from the domestic debt market.

It is meeting financing requirements through borrowing from commercial banks as it is adhered to its commitment of zero borrowings from the central bank under the International Monetary Fund (IMF) $6 billion loan programme.

The banks invested heavily in T-bills and PIBs on receiving lucrative returns on such papers by the government. Analysts said reduction in the fiscal deficit was one of the important economic challenges the new government was facing.

The center’s immediate task is to manage foreign exchange reserves. For that, primary focus should be on negotiation with the IMF. In lieu of this, it will be pertinent to highlight that all IMF targets remain largely compliant (barring the primary balance).

Analysts expected reconsideration of the subsidy on fuel and power along with amnesty for industries. The robust revenue drive should also remain on-track (FBR’s revenue collection of Rs4.4 billion in nine months of this fiscal exceeds target of Rs4.1 billion for the same period). Focus should remain on broadening the tax net and rationalizing subsidies.

According to Fitch Ratings report, the change in government may complicate timely completion of remaining three reviews of the IMF programme. Senior officials from key parties in the new government have signalled that they plan to maintain engagement with the IMF.

However, negotiations around key revenue-raising reforms could prove lengthy, particularly as the government is a broad coalition of disparate political parties.

“New fuel subsidies introduced in March have already added to complications facing the programme talks and medium-term fiscal consolidation, as have upcoming elections, which are still due by mid-2023,” the report said.

The report viewed a slippage on reform momentum as credit negative. In longer term, if authorities were unable to pursue fiscal consolidation, Pakistan’s access to market financing would remain constrained, it stated.