Government intends to borrow Rs 1.255 trillion in fourth quarter

The federal government intends to borrow Rs 1.255 trillion from banking sector during the fourth quarter (April-June) of FY11 to meet its rising financial needs. Sources in banking industry said that revenue shortfall and rising expenditures have compelled the government to enhance its reliance on banking system for borrowing.
Although, the federal government has made some changes in the tax system with expectations of Rs 53 billion additional revenue and to meet revenue target of the current fiscal year, however, the government is still facing financial hardships due to less-than-target revenue collection and slow foreign inflows.
Recently, the SBP has also warned that if the external inflows not released in time, there was a risk of further substantial government borrowing from banking system, which would make liquidity management more challenging.
The government received Rs 48 billion from external sources to finance budget during the first half of current fiscal year against the budget estimates of Rs 230 billion for FY11. The receipts are some Rs 182 billion less than the target. The International Monetary Fund (IMF) has also held up 5th tranche of Stand By Arrangement (SBA) for last six months.
Meanwhile, the State Bank of Pakistan on Thursday issued three calendars for the auction of Ijara Sukuk, Pakistan Investment Bond (PIBs) and Market Treasury Bills (MTBs) and according to these calendars the federal government has planned to borrow Rs 1.255 trillion from banking sector during April-June of FY11 for financial requirements. According to the SBP, an amount of Rs 45 billion will be borrowed from Islamic Banking Industry (IBI) through auction of Government of Pakistan Ijara Sukuk.
Pre-auction target of Ijara Sukuk for fourth quarter of FY11, issued by the central bank, shows the auction for the sale of Islamic Bonds will be held on May 9, 2011 and the target has been set at Rs 45 billion. However, maximum value of the assets under the issuance programme of the Ijara Sukuk stand at Rs 54.95 billion.
IBI has about 6 percent share in overall Islamic banking industry and has limited liquidity space. Therefore, only Rs 45 billion borrowing target has been set through Ijara Sukuk. The remaining amount will be borrowed from conventional banking through auction of T-bills and PIBs.
Under PIBs, the federal government intends to borrow Rs 60 billion. First auction of 3-, 5-, 7-, 10-, 20- and 30 years long-term investment bonds will be held on April 13, 2011 with a target amount of Rs 20 billion. Another Rs 20 billion target has been set for the second auction which will be held on May 11, 2011 and the third auction of the same amount will be held on June 8. In addition, the government has planned to borrow Rs 1.150 trillion from banking sector (other than Islamic) through sale of Pakistan Market Treasury Bills of 3 months, 6 months & 12 months. Auction of MTBs will be held fortnightly and as many as 6 auctions have been announced by the State Bank for the fourth quarter of current fiscal year. First auction will be held on April 6 for sale of Rs 200 billion worth MTBs. Second auction will be on April 20, with a target of Rs 225 billion.
Two auctions will be held on May 4 and May 18 with a target of Rs 200 billion and Rs 150 billion, respectively. Two more auctions have been announced for June 15 and June 29 with an amount of Rs 150 billion and Rs 50 billion, respectively. The government has already borrowed a massive amount of Rs 329 billion during July 1, 2010 to March 12, 2011 through various instruments, increasingly in the 3-month Treasury Bills.
The SBP has already projected that the country will miss its fiscal deficit target of 4 percent and at the end of this fiscal year, overall fiscal deficit will be around 6-6.5 percent in June 2011. The stock of domestic debt and liabilities has posted an increase of 6.7 percent by end-November 2010 over the June 2010 stock. This increase in the domestic debt was witnessed on account of higher fiscal deficit and limited availability of external financing. In terms of composition, the rise in total stock of domestic debt and liabilities came entirely from government''s domestic debt.