Govt plans Rs3.7tr borrowing from banks till December

Government planned to borrow Rs3.7 trillion from banking system through treasury bills and bonds by the end of this year, the central bank's data showed, as tax revenues are still not enough to meet growing expenditures.

The State Bank of Pakistan (SBP) said it will hold fortnightly auctions for three, six and 12-months of market treasury bills between October and December. Total target for the seven treasury bills auctions is Rs2.35 trillion.

The SBP will also sell Rs770 billion worth of three-, five- and 10-year Pakistan Investment Bonds ( PIBs) with floating rate and Rs420 billion worth of 10 and 20 years PIBs with fixed rate. Further, Rs105 billion worth of a five-year Ijara sukuk with variable rental rate and Rs45 billion worth of Ijara sukuk based on fixed rental rate will also be auctioned.

Saad Hashemy, executive director at BMA Capital said the target for treasury bills is less than the maturing amount of Rs2.95 trillion.

"So, dependence on borrowing from t-bills, which is short term, is less," said Hashemy. "The government however is raising cumulative Rs1.2 trillion from longer maturity PIBs." Hashemy said outlook for domestic borrowing will be dependent on tax revenues.

"Meeting the first quarter revenue target and continuation of the trend will result in lower dependence on borrowings for the remaining fiscal year," he said.

The government's domestic debt rose 0.4 percent to Rs23.4 trillion at the end of July. The nominal increase in the domestic debt reflected slowdown in the government's deficit spending and improving revenues.

The improvement in the budget deficit was due to increase in non-tax revenues, while tax revenue rose only 1.8 percent to Rs587 billion.

The budget deficit remained at Rs440 billion or 0.9 percent of gross domestic product during the first two months (July-August) of the current fiscal year.

The budget deficit is improving despite pressures from lockdown and beat the market expectations. The deficit for the last fiscal year ended lower than in the previous year and the increase in public debt was contained at around 1 percent of GDP.

The government's borrowing from the commercial banks for budgetary support fell to Rs506 billion during July 1 to September 25 from Rs1.69 trillion a year ago, according to the SBP's data. A banker said sharia-compliant bonds are a good source of funds for the government.

"The demand for the sukuk is high, but its supply is low," he said. "The government should speed up the sukuk issuance, with increasing the size of these securities to raise the share of Islamic banking institutions in the domestic debt."