Mortgaging new assets to get Rs2tr loans

Cabinet approves floating domestic, international Sukuk

ISLAMABAD:

The federal cabinet on Tuesday approved pledging Pakistan’s seashore infrastructure, sports and tourism facilities and a few remaining major road networks to raise more debt after borrowing nearly Rs2 trillion by giving all major airports and highways in surety during the past one year.

Both the cabinets of former prime minister Imran Khan and Prime Minister Shehbaz Sharif have been doling out national assets to raise loans but have failed to mend their spending habits that has already increased the federal government’s debt close to Rs45 trillion.

Headed by Prime Minister Shehbaz Sharif, the federal cabinet approved giving six more national assets in collateral to domestic and international lenders ---10 days after the same highest decision-making body approved Rs4.6 trillion deficit bill for fiscal year 2022-23.

Planning Minister Ahsan Iqbal on Tuesday told the media that the federal cabinet approved a summary of the finance ministry regarding issuance of domestic and international Sukuk against the assets of the government. He did not disclose the details of the assets.

But the summary showed that the cabinet approved pledging portions of West Wharf and East Wharf, Karachi, land and hotels of the Pakistan Tourism Development Corporation (PTDC) and portions of Islamabad Sports Complex.

The cabinet also approved giving Islamabad Metro, portions of Grand Trunk (GT) road, Islamabad Expressway, portions of Makran Coastal Highway (N-10) and Indus Highway (N-55) in collateral to raise debt.

The federal cabinet also allowed the finance ministry to issue domestic and international Islamic bonds to raise debt against the assets. However, the international bonds cannot be floated until Pakistan is able to secure a deal from the International Monetary Fund.

Just a year ago, former prime minister Imran Khan-led federal cabinet had also approved giving in surety the national motorways and airports to raise debt, which the Finance Ministry has almost exhausted. In the past one year, the Finance Ministry raised Rs1.2 trillion debt by giving assets of National Highway in surety and another Rs672 billion by giving airports in collateral, the Finance Ministry informed the federal cabinet.

The previous PTI government issued domestic Sukuk bonds against Jinnah International Airport, Karachi, Allama Iqbal International Airport, Lahore; Multan International Airport; and NHA Highways and Motorways. For international sukuk, the PTI government had utilized various sections of the M2 Motorway.

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Overall, the federal government has undertaken 52 domestic transactions worth Rs3.2 trillion and five international Sukuk transactions amounting to $4.6 billion.

The Finance Ministry stated that Sukuk transactions would help in obtaining better pricing as compared to other avenues of raising domestic and external resources like treasury bills, Pakistan Investment Bonds and conventional Eurobonds.

However, the Finance Ministry could not get a better response from the domestic investors who gave only Rs66 billion loans against the target of Rs100 billion. After mostly exhausting the conventional borrowings, the cash-starved federal government has also fully tapped the Islamic financing markets that till recently had nearly Rs1 trillion available financing.

On June 10, the federal cabinet approved the fiscal year 2022-23 budget with Rs4.6 trillion federal budget deficit target, to be financed by the domestic and foreign lenders. Yet, the federal government does not seem to be mending its ways and has allocated funds that are prone to misuse.

The government has given Rs70 billion to parliamentarians for politically motivated development schemes and Rs500 million have been allocated for supposedly closed Earthquake Reconstruction and Rehabilitation Authority.

The Rs60 billion subsidies have been given for provision of cheaper gas and electricity for the so-called export oriented industries has been proposed. Around half of the export related subsidy is being used against domestic production –the pilferage that the government can easily stop by linking export subsidies with actual receipts of exports.

Dozens of schemes have also been included in the next year's development programme, which are finalized without proper technical appraisers.

The Budget Strategy Paper that the cabinet approved on June 10th too revealed that the federal government’s debt will jump to Rs48.5 trillion by end of this June –almost double than four years ago. Not only that, the federal government’s debt is projected to grow to Rs54.1 trillion by June next year –an addition of Rs5.6 trillion or 11.5%.

Despite the harsh numbers, the federal government does not seem serious in throwing primary budget surplus figures and the number that it presented in the budget is unrealistic.

The budget paper showed that the debt-to-GDP ratio will increase and record at around 72.4% at the end of the ongoing fiscal year primarily due to higher federal fiscal deficit and depreciation of the rupee against the US dollar.

It said that the debt-to-GDP ratio is expected to reduce to 69.1% at the end of the next fiscal year on the back of fiscal consolidation efforts of the government. The Finance Ministry’s next year’s projections have hardly proven correct in the past.

In 2017-18, FBR tax-to-GDP ratio was 11.7% which decreased to just 8.5 per cent in FY 2020-21.