The cash-strapped government has borrowed Rs71 billion through the auction of three- and five-year Pakistan Investment Bonds (PIBs) in an attempt to bridge its budget deficit.
The borrowing from commercial banks, however, was significantly lower than the auction target of Rs160 billion as banks were seeking higher returns on extending financing to the state.
The government on Wednesday borrowed almost the entire amount, ie Rs70.76 billion, through the sale of three-year PIBs at 19.32% rate of return. The return could have gone significantly higher had the auction target of Rs160 billion been met.
The government also sold Rs0.11 billion worth of five-year PIBs at 15.95% rate of return. It rejected banks’ bids for 10-year PIBs while no offers were made for 15-year, 20-year and 30-year bonds during the auction.
The government has been increasingly relying on domestic borrowing over the past one year after multilateral and bilateral creditors avoided lending to the country in the wake of a stalled IMF loan programme.
State Bank of Pakistan (SBP) Governor Jameel Ahmad said earlier in the week that the reliance on domestic borrowing would come down after the IMF endorsed a new, nine-month loan programme of $3 billion in late June.
The government cannot directly borrow from the central bank and is bound to acquire financing from commercial banks under the IMF loan conditions. Central bank lending through the printing of new currency notes has been a major cause of high inflation in the country.
Financial experts said that Pakistan’s domestic and foreign debt had grown to unsustainable levels, requiring the authorities concerned to get them restructured in a bid to create some fiscal space for propping up economic activities.
At present, Pakistan’s total debt stands at Rs59 trillion and interest costs leave nothing for injection into the faltering economy.
Figures indicate that interest payments soared to almost 70% of the total revenue collection by the Federal Board of Revenue (FBR) in fiscal year 2022-23, swallowing almost all funds required for executing the development projects and running day-to-day affairs of the country.
Published in The Express Tribune, August 3rd, 2023.
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