Sukuk auction announced to finance budget deficit

The State Bank of Pakistan (SBP) on Monday announced the auction for three-year Government of Pakistan (GoP) Ijara Sukuk to raise some Rs 225 billion in the next three months for the federal government.

Recently, the federal cabinet approved issuance of Islamic denominated Sukuk bond to generate some Rs700 billion for budget deficit financing and to meet the rising financial requirements for combating COVID-19. The five-year Ijara Sukuk will be issued against the land of Jinnah International Airport, Karachi.

According to SBP announcement, three tenders will be conducted during the next three months for sale of Ijara Sukuk amounted to Rs 225 billion. First auction will be held on April 16, 2020 for Rs 75 billion, second on May 16 for Rs 75 billion and third is scheduled for June 18, 2020 for Rs 75 billion.

Industry sources said the federal government has announced the auction for Ijara Sukuk after a gap of two years as last auction was held in June 2017. The delay in auction for Sukuk has resulted in effective liquidity management challenges for the Islamic banking industry of Pakistan as they have limited investment instruments despite sufficient liquidity.

They said the government can raise more amount through auction for Sukuk as Islamic banking has sufficient liquidity. As per estimates, presently, Islamic banking industry has some Rs 300-400 billion surplus liquidity and is looking for new Islamic investment opportunities.

They said that the federal government is facing shortage of funds due to unplanned expenditures in wake of COVID-19 pandemic and in this situation this is the right time to manage these funds by rising more financing through issuance of Sukuk, which have already been approved by federal cabinet.

In Pakistan, sovereign sukuk being issued since 2008 to provide the key liquidity management avenues to the domestic Islamic industry; however, demand for such instruments far surpasses their supply.