Domestic debt increased by Rs 588.2 billion during the first half of this fiscal year (FY18), slightly higher than the level observed in the same period last year. According to State Bank of Pakistan''s report most of the increase in domestic debt was concentrated in the first quarter of FY18, since the government borrowing needs from domestic sources shrank in the second quarter due to increased borrowings from external sources.
Moreover, almost the entire increase in domestic debt came from short-term debt, as there was net retirement of long-term debt during the period. Similar to H1-FY17, the government continued to rely on short-term borrowings from scheduled banks. With the expectation of monetary tightening that prevailed throughout the first half, the banks'' interest in Pakistan Investment Bonds (PIB) auctions was almost non-existent.
In absolute terms, banks offered only Rs 158.4 billion in PIB auctions during H1-FY18 compared to Rs 9.1 trillion offered in T-bills auctions. Within T-bills, around 85.6 percent of the offers were for 3-month T-bills only. Given the market sentiments, the government managed to meet most of its financing requirements from the external sources, and the rest almost entirely from 3-month T-bills. As an outcome, the share of 3-month T-bills in total outstanding T-bills reached 62.6 percent in December 2017 from 32.8 percent in June 2017, the report maintained.
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