Govt to borrow Rs6.775tr from debt market in Aug-Oct

Our Correspondent
Thursday, Aug 18, 2022

KARACHI: The government plans to borrow Rs6.775 trillion from the domestic debt market in August-October, the central bank’s auction calendar showed on Wednesday, to meet its financing requirements.

It would raise Rs5.350 trillion from the auctions of Market Treasury Bills (MTBs) and Rs1.125 trillion through the sale of fixed and floating rate Pakistan Investment Bonds (PIBs).

The State Bank of Pakistan (SBP) would sell Rs525 billion worth of fixed-rate PIBs and Rs150 billion worth of five-, and Rs150 billion worth of 10-year floating rate PIBs. It would also auction a three-year Rs150 billion and a two-year Rs150 billion floating rate PIB.

The SBP would also sell Rs210 billion worth of variable rental rate five-year Government of Pakistan Ijara Sukuk and Rs90 billion worth of fixed rental rate domestic Islamic bonds.

During August-October FY2023, Rs6.384 trillion worth of PIBs will mature. The government is not cutting its domestic market borrowing plan, despite expectations of securing the IMF bailout by the end of this month.

Pakistan’s total debt and liabilities increased 25 percent year-on-year to Rs59.7 trillion in the fiscal year that ended on June 30, 2022. This increase was due to imprudent policies and currency devaluation. Public debt rose 23.5 percent to Rs47.8 trillion in FY2022. It surged Rs3.145 trillion month-on-month in June, the highest-ever monthly increase. Pakistan saw a record budget deficit of Rs5.5 trillion in FY2022, breaching an annual target of Rs4.4 trillion. The increased spending requirement for giving fuel subsidies, delay in the resumption of the IMF programme, and lack of external financing contributed to the rise in the public debt. The government also borrowed heavily from the commercial banks to bridge the funding gap.

The yields on T-bills and bonds remained flat on the expectation of no change in interest rates at the upcoming policy review due next week.

“The yields in the primary market have remained almost unchanged since the last MPC [Monetary Policy Committee] announcement in July. Whereas, secondary market yields have increased in line with the movement in the policy rate since the last MPC announcement, and do not seem to reflect expectations of another rate hike for now,” said Mustafa Mustansir, the head of research at Taurus Securities, in a note.

“The SBP’s MPC is scheduled to meet on August 22, 2022, wherein we expect it to keep the benchmark policy rate unchanged at 15 percent,” Mustansir added.

The hiking of interest rates would have limited effect on curbing headline inflation, which was being largely driven by supply-side factors including higher fuel and energy prices, with a lagged effect on core inflation, he said.

“In addition, pressure on the rupee has subsided significantly with Pakistan inching closer to the next IMF disbursement as well as enhanced monitoring of exchange operations by the SBP,” Mustansir added.