Will float T-bills and PIBs to raise funds to pay off maturing debt
The Pakistan Tehreek-e-Insaf (PTI) government has planned to raise debt worth Rs5.87 trillion by offering sovereign securities to commercial banks over the next three months, according to the central bank.
The funds to be raised through the issuance of treasury bills (T-bills) and Pakistan Investment Bonds (PIBs) would be partially utilised to pay off the maturing debt of Rs5.15 trillion. However, they will also add a net Rs720 billion to the public debt portfolio in the three months from October to December 2021.
The planned borrowing will be expensive in the wake of an uptick of 25 basis points in the benchmark policy rate of the central bank in September 2021 and will increase the debt burden on the nation.
“An increase of one percentage point in the benchmark interest rate increases interest payment (debt servicing) by Rs180 billion,” Economist Dr Ashfaque Hasan Khan said.
Besides, Rs1.8 trillion had been added to the foreign debt component of the total public debt because of rupee depreciation over the past five months, said Khan, who is also the Dean and Professor at National University of Sciences and Technology (NUST).
The rupee has depreciated by Rs18.53 from the 22-month peak of Rs152.28 touched in May 2021. The local currency closed at Rs170.8 against the greenback on Tuesday.
The breakdown of the planned fresh borrowing suggests that the government will borrow Rs5.05 trillion by issuing three to 12-month T-bills against maturing papers of Rs5.1 trillion from October to December 2021.
Similarly, it will raise Rs300 billion by floating three to 30-year PIBs (at a fixed rate of return) against the maturity of previously issued bonds worth Rs55 billion during the three months.
Govt to borrow Rs4.8tr from commercial banks
It will borrow an additional Rs225 billion through the issuance of three to five-year PIBs at a floating (variable) interest rate against zero maturity as the floating rate bonds are relatively new.
“The issuance of government debt securities at a floating rate is aimed at reducing the cost of borrowing,” Pak-Kuwait Investment Company Head of Research Samiullah Tariq said the other day.
The government is also gradually replacing its short-term debt (T-bills) with long-term borrowing (PIBs).
“This measure is aimed at making the debt profile sustainable, getting enough time to implement economic reforms and overcoming the challenge of increasing tax collection by the time long-term papers of up to 30 years reach maturity,” he said.
The government will utilise the net new debt of Rs720 billion to finance its budget expenditure including development projects like roads and dams under the Public Sector Development Programme (PSDP).
It will also partially finance its defence requirements and issue funds to different ministries in the form of debt.
The government will finance its expenditures through the debt because tax revenue collection has remained low compared to the immediate requirement for funds for the ongoing fiscal year 2021-22.
The government has set the economic growth target at 4.8% for the current fiscal year. It has announced a budget of Rs8.5 trillion for the purpose.
The outlay is supposed to be financed through the targeted revenue collection of Rs5.82 trillion and borrowing worth Rs3.42 trillion.
The government has set the fiscal deficit target at Rs3.42 trillion (or 6.3% of GDP) for the current fiscal year against 7% last year.
It aims to collect 17.4% higher tax revenue through the Federal Board of Revenue (FBR) to Rs5.82 trillion in FY22 compared to Rs4.96 trillion in FY21.