The government will borrow Rs5.9tr in 3 months

KARACHI:

Pakistan’s Tehreek-e-Insaf (PTI) government plans to increase debt worth 5.87 trillion rupees 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 Pakistani investment bonds (GDP) would be partially used to repay the maturing debt of Rs.15 trillion. However, they will also add a net amount of 720 billion rupees to the public debt portfolio during the three months from October to December 2021.

Planned borrowing will be costly following a 25 basis point hike in the central bank’s benchmark policy rate in September 2021 and will increase the country’s debt burden.

“A one percentage point increase in the benchmark interest rate increases the interest payment (debt service) by 180 billion rupees,” said economist Dr Ashfaque Hasan Khan.

In addition, 1.8 trillion rupees has been added to the external debt component of total public debt due to the depreciation of the rupee over the past five months, said Khan, who is also dean and professor at the University. National Science and Technology (NUST).

The rupee depreciated by Rs 18.53 from the 22-month high of Rs 152.28 reached in May 2021. The local currency closed at Rs 170.8 against the greenback on Tuesday.

The breakdown of planned new borrowing suggests that the government will borrow Rs 5.05 trillion by issuing 3- to 12-month treasury bills against securities maturing Rs 5.1 trillion from October to December 2021.

Likewise, it will raise Rs 300 billion by floating three to 30 year GDPs (at a fixed rate of return) against the maturity of previously issued bonds worth Rs 55 billion in the three months.

Government to borrow Rs4.8tr from commercial banks

It will borrow an additional 225 billion rupees through the issuance of three to five year GDP at a floating (variable) interest rate against zero maturity, as floating rate bonds are relatively new.

“The purpose of issuing government variable rate debt securities is to reduce the cost of borrowing,” Pak-Kuwait Investment Company research director Samiullah Tariq said the other day.

The government is also gradually replacing its short-term debt (T-bills) with long-term loans (GDP).

“This measure aims to make the debt profile sustainable, to have sufficient time to implement economic reforms and to overcome the challenge of increasing tax collection by the time the long-term papers go. up to 30 years expire, ”he said.

The government will use the new net debt of Rs 720 billion to finance its budget spending, including development projects such as roads and dams under the Public Sector Development Program (PSDP).

It will also partially finance its defense needs and issue funds to various ministries in the form of debt.

The government will finance its spending through debt as tax revenue collection has remained low compared to immediate fund requirements for the current fiscal year 2021-2022.

The government has set the economic growth target at 4.8% for the current fiscal year. He announced a budget of 8.5 trillion rupees for this purpose.

The expenditure is supposed to be financed through the targeted collection of receipts of 5.82 trillion rupees and loans worth 3.42 trillion rupees.

The government has set the budget deficit target at 3.4 trillion rupees (6.3 percent of GDP) for the current fiscal year compared to 7 percent last year.

It aims to collect 17.4% higher tax revenue through the Federal Board of Revenue (FBR) to 5.82 billion rupees in fiscal year 22, compared to 4.96 billion rupees in fiscal year 22. exercise 21.

Posted in The Express Tribune, October 6e, 2021.

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