Govt eyes Rs2.4trln debt from banking sector

KARACHI: Facing a difficult challenge to narrow widening fiscal deficit, the government planned to raise massive Rs2.4 trillion from banking sector through treasury bills and bonds in three months, the central bank’s data showed on Tuesday.

The State Bank of Pakistan (SBP) data showed that the government planned to raise Rs900 billion through market treasury bills of 3-, 6- and 12-month, Rs900 billion via floating-rate Pakistan Investment Bonds (PIBs) of 5-, 10- and 20-year and Rs420 through fixed-rate PIBs. The government also planned to bag Rs225 billion through Ijara sukuk between June and August.

The government budgeted fiscal deficit at Rs3.2 trillion for the upcoming fiscal year of 2020/21, accounting for 7 percent of GDP compared 9.1 percent for the current fiscal year of 2019/20.

Though the budget outlay of Rs7.3 trillion for FY2021 was revised down 11 percent over this fiscal year, total federal revenue receipts were revised up 19 percent to Rs3.7 trillion. Alone the revenue target for the Federal Board of Revenue was set at Rs4.96 trillion, a straight 27 percent year-over-year growth. Non-tax revenue was envisaged at Rs1.11 trillion, 14 percent lower year-over-year mainly due to a 21 percent fall in SBP profits.

Analysts said the revenue target is highly ambitious considering the performance record of the tax machinery and in the aftermath of coronavirus.

“We believe that under the extraordinary tough economic conditions due to the COVID-19 outbreak, the government will have a huge juggling task to contain the fiscal deficit,” Topline Securities said in a report.

“We expect revenue collection to remain subdued due to decline in economic activity, while at the same time the government will have to increase its expenditures to revitalise the economy.”

Pakistan’s economic activities had been almost stopped since late March after the coronavirus outbreak and started to gradually resume from earlier this month.

The government already mentioned in the budgetary document that it aims to finance the budget majorly through gross external loans of Rs810 billion – net of repayments – and domestic financing of Rs2.4 trillion, whopping 82 percent higher than the budgeted domestic financing in FY2020.

Bank financing is budgeted at Rs889 billion, 2.6 times higher year-over-year, while the bulk of the domestic financing is expected from non-bank financing of Rs1.39 trillion, up 70 percent year-over-year.

“Drastic monetary easing of 525 basis points by the SBP saves grace as mark-up payments are only budgeted to be 9 percent higher despite a mammoth jump in domestic borrowing expected for FY2021,” brokerage Arif Habib Limited said in the post-budget analysis.