Govt raises Rs155bn via PIBs auction

Our Correspondent
Thursday, Jun 23, 2022

KARACHI: The government on Wednesday raised Rs155 billion through the auction of fixed rate Pakistan Investment Bonds (PIBs), with yields inching down on three and five years papers.

The yield on three-year PIBs slightly fell by 3 basis points (bps) to 13.97 percent, the SBP’s PIBs auction result showed. The yield on five-year paper lost 1 bps to 13.18 percent. The yield on 10-year paper remained unchanged at 13.15 percent.

The bids were rejected for 15 years papers. The bids were not received for 20-, and 30-year papers. It was expected that yields on PIBs to come down in the weeks ahead tracking a decline in T-bills rates in an auction held on June 15.

The SBP is frequently conducting a 63-day open market operation (OMO) to bring stability to the secondary market. The 2022-23 budget has proposed that tax rate on the interest income from government securities with banks having an advance-to-deposit ratio (ADR) of 50 percent or more should be increased to 45 percent from 35 percent.

For banks with an ADR of 40-50 percent, the rate has been increased to 49 percent from 37.5 percent, and for banks with an ADR of less than 40 percent; it is increased to 55 percent.

The implementation of the said increase in tax rates on certain ADR thresholds would apply on a retrospective basis from 2021 and onwards (Tax Year 2022 and onwards). It would likely lead to a higher effective tax rate of around 53 percent in 2022 and would settle down to 48 percent in 2023. Since the SBP amendment Act 2021, the government has to rely mostly on commercial bank borrowing for financing its fiscal needs, which resulted in a rise in secondary market yields on government securities in the previous auctions.