Govt to borrow record Rs4.8tr via treasury bills in first quarter
Amid a revenue setback in December and higher expenditure, mostly for debt servicing, the government plans to borrow a record Rs4.8 trillion in the first three months of 2023 through market treasury bills (MTBs).
According to the auction target calendar issued by the State Bank of Pakistan (SBP) on New Year's Eve on Saturday, it will hold a total of seven auctions beginning Jan 3 (tomorrow) - a special auction to generate Rs300 billion even though there is no debt maturing during the week.
The Federal Board of Revenue (FBR) on Saturday reported about Rs225bn revenue shortfall against the monthly target for December. The funds would be raised through MTBs of various durations of three, six and 12 months.
The government usually raises funds from the market (commercial banks) through sovereign-backed debt instruments periodically to make up for the shortfalls in its tax collection. The government public debt worth Rs4.45tr is maturing for repayment in the first quarter of 2023.
The SBP's calendar showed
it would hold three auctions in January with a target to raise Rs1.6tr against debt maturity of about Rs1.27tr. After the first auction for Rs300bn on Jan 3, two subsequent auctions would be held on Jan 11 and Jan 25 for Rs650bn each.
This will be followed by two auctions each in February and March with a target to mop up Rs1.1tr and Rs2.1tr, respectively. The debt maturing in February stands at Rs1.137tr and that of March at Rs2.05tr.
The calendar showed that the fourth auction would be held on Feb 8 for Rs800bn, followed by another for Rs300bn on Feb 22. The biggest auction would be held on March 8 for Rs1.8tr, followed by another for Rs300bn on March 22.
The SBP invites bids and tenders for the sale of MTBs and PIBs from 'primary dealers' on the respective auction dates through the Bloomberg Online Auction Module.
About a dozen banking institutions serve as primary dealers and bid for government securities in SBPheld auctions besides selling these instruments to other retail or institutional clients and banks.
The bidding for all auctions would be held on the pre-announced data at 1000 hours and bids would be closed within two hours, with settlements due the next day. The interest rates on MTBs have been increasing for several months and have touched 17pc, even though banks normally find secure returns on government papers while the private sector is unable to avail financing amid rising costs and declining industrial output and sluggish economic activities.
Earlier, in September 2022, the government borrowed a total of Rs1.399 trillion from banks against the target of Rs1.50 trillion. Banks offered financing of Rs2.479 trillion as the lending rate of commercial banks spiked to a record high at 16% on financing to the cash-strapped government, as demand for funds stood high for flood rehabilitation work and meeting other budgeted expenditures. The fresh borrowing came as the government has to repay Rs1.968 trillion to commercial banks this week. It raised the financing through the auction of sovereign debt securities (treasury bills) of three to 12 months on Wednesday. "The cutoff yield (lending rate) could have gone up further had the government borrowed the targeted amount," Arif Habib Limited Head of Research Tahir Abbas said while talking to The Express Tribune.