The government has planned to borrow Rs6.78 trillion from commercial banks over a period of two months – August and September 2022, mainly to repay previous loans and to finance its budget deficit.
Out of the new debt, it will utilise Rs6.38 trillion to repay the maturing old debt of financial institutions, according to the central bank on Wednesday.
The coalition government will add a net Rs391 billion in the two months to the already heavy debt (both domestic and foreign), totalling almost Rs60 trillion by June 30, 2022.
The Rs60 trillion is equivalent to 89% of the total size of economy at Rs67 trillion in the previous fiscal year ended June 30, 2022.
Pakistan’s reliance on debt is on the rise, as its collection of tax and non-tax revenue has remained low compared to the budgeted expenditures.
A big chunk of new debt is utilised to repay the old one and pay interest cost on the total debt. Besides, it is partially used to finance infrastructure development projects like roads and dams and the defence budget.
Imprudent fiscal policies of the government, subsidy payments on energy products, food (wheat and sugar), agricultural inputs (fertiliser) and export of goods, and rupee depreciation play a key role in the piling up of the debt stock.
The government has set the budget deficit target at 4.9% of the total size of economy, or Rs3.79 trillion, for current fiscal year 2022-23.
The government has estimated interest payments at Rs3.95 trillion in the current fiscal year
Borrowing targets
The government borrows from commercial banks by selling them conventional and Shariah-compliant debt securities like short-tenure T-bills and long-tenure Pakistan Investment Bonds (PIBs).
According to the State Bank of Pakistan’s (SBP) auction calendar for T-bills and PIBs, the government will raise Rs5.35 trillion through sale of three-month to 12-month T-bills in August and September 2022.
It will borrow another Rs525 billion by selling five-year to 30-year PIBs at fixed rates ranging from 7.50% to 11% depending on the bond’s tenure.
It has decided to acquire a sum of Rs600 billion through selling two-year to ten-year PIBs at a floating rate ranging from 14.71% to 15.69% in the two months.
The government has planned to raise another Rs210 billion by selling five-year Shariah-compliant Ijara Sukuk at the variable rental rate (VRR) and another Rs90 billion at a fixed rental rate (FRR).
Maturing debt
The government is due to repay Rs5.73 trillion to commercial banks at the maturity of their investment in T-bills during the two months of August and September 2022.
Besides, it is also having obligation to return another Rs658 billion against maturing five-year to 30-year PIBs alone in September 2022, according to the central bank.
Experts said the government may reduce its reliance on piling debt by going after rich individuals and land loads to pay their due revenue in taxes to the national exchequer.
Published in The Express Tribune, August 18th, 2022.
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