The government of Pakistan planned to borrow Rs7tn through market treasury bills (MTBs) and Pakistan Investment Bonds (PIBs) to meet its financial needs during the first quarter of the current fiscal year of 2019/20, the central bank said.
The State Bank of Pakistan (SBP) said the government planned to raise Rs6.3tn through sale of market treasury bills (MTBs) for three-, six-, and 12-months during the next three months.
Around Rs5.1tn worth of MTBs would be matured in the July-September period. The government would also secure Rs300bn from the sale of Pakistan Investment Bonds (PIBs) for three, five, 10 and 20 years during the quarter.
Around Rs416bn worth of PIBs would be matured during the period.
Moreover, the SBP would auction Rs400bn of 10-year floating rate PIBs during the period.
The SBP said the fixed rate for 3 years PIBs is 7.25%, 8% for five years, 8.75% for 10 years and 10.75% for 20 years.
The government borrows from banks to meet its financing requirements amid weak revenue collection. The country ran a budget deficit of Rs1.922tn or 5% of GDP in July-March FY19.
The budget deficit is likely to increase to more than 7% of the GDP against a target of 5.1% fixed by the government for the FY2019 amid a revenue shortfall.
Pakistan agreed with the International Monetary Fund (IMF), under a $6bn loan programme, to refrain from any new direct financing of the budget by the SBP (continuous performance criterion) and to gradually reduce the SBP stock of net government budgetary borrowing (performance criterion).
“Direct SBP financing of the budget has increased from around Rs3.6tn in FY2018 to over Rs7.7tn (around 20% of GDP) today,” the IMF said in a latest country report. “This fiscal dominance has greatly compromised the SBP’s operational independence, jeopardising the achievement of the inflation objective.”
The country’s fiscal programme is centred on ensuring debt sustainability by reducing fiscal and eliminating quasi-fiscal deficits on the back of stronger revenue mobilisation efforts while creating space to support social and development spending.
“Given Pakistan’s low tax ratio and limited scope to reduce spending and the insufficient resources allocated to priority areas, staff and the authorities shared the view that the fiscal strategy should focus on increasing revenue through broad-based tax policy and administration reforms to raise the tax to GDP ratio by 4-5 percentage points,” the IMF said.
“These should aim at improving the primary deficit by 4.5% of GDP by FY2023 and bringing the overall fiscal deficit to around 2.5% of GDP, in line with the FRDLA (Fiscal Responsibility and Debt Limitation Act).” The efforts, along with the other policies under the programme, are expected to reduce general government debt from 80.5% of GDP in FY2020, to 67% of GDP by FY2024.
The fiscal deficit is projected to decline in line with the FRDLA deficit target as the authorities’ broad-based tax policy and administration reforms take hold, according to the IMF.
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