Deficit financing: Govt plans to borrow over Rs5trn from banks in 3 months

KARACHI: The federal government has planned to borrow over Rs 5 trillion from the domestic banking sector during the next three months (April-June) of 2022 to finance the fiscal deficit.

The State Bank of Pakistan (SBP) has issued four auction calendars for the sale of Market Treasury Bills (MTBs), of Pakistan Investment Bonds (PIBs) and Government of Pakistan Ijara Sukuk (GIS).

According to these calendars, the federal government intends to borrow a tentative amount of Rs 5.3 trillion from the banking sector through auction of security papers during the next three months to

fulfill its financial requirements.

The federal government will raise Rs 4 trillion from the banking sector through sale of Pakistan Market Treasury Bills of 3-month, 6-month & 12-month in April-June of FY22. A Total of 7 auctions of MTBs have been announced by the State Bank, out of which some one auction has already been conducted on April 6, 2022. The targeted amount includes Rs 3.6 trillion of maturing amount and an additional amount of Rs 400 billion.

The federal government has planned to borrow some Rs 1 trillion through sale of long-term investment bonds. Some Rs 350 billion will be borrowed through sale of PIB Fixed Rate and another Rs 700 billion through PIB Floating Rate. Three auctions of PIB Fixed Rate and seven auctions of PIB Floating Rate will be held during the next three months.

An amount of Rs 300 billion will be borrowed as against sale of Government of Ijara Sukuk (GIS). This includes Rs 75 billion of 5-year Fixed Rental Rate (VRR) Sukuk and Rs 225 billion of 5-year Variable Rental Rate (VRR) Sukuk for all Islamic Banks and commercial banks

with Islamic Banking Branches.

Analysts said that the higher foreign inflows and healthy growth in domestic revenue can reduce the government’s reliance on the domestic banking system for financing the fiscal deficit.

Copyright Business Recorder, 2022