KARACHI: In the absence of sufficient foreign inflows, the federal government has enhanced its reliance on borrowing from the domestic banking system to finance the fiscal deficit.

According to the State Bank of Pakistan (SBP), the federal government will borrow over Rs7 trillion from the banking sector during the second quarter (Oct-Dec) of the current fiscal year (FY23).

Analysts said that the government is facing a serious financial crunch due to higher current and development expenditures followed by floods in the country. Although the revenue collection by the Federal Board of Revenue (FBR) is gradually increasing, it is still insufficient to meet the expenditures. In the current scenario, when the government is facing higher fiscal deficit and lower foreign inflows, borrowing from the banking system is an easy way to meet the fiscal deficit.

The State Bank on Wednesday issued three calendars for the auction of Ijara Sukuk, Pakistan Investment Bond (PIBs) and Market Treasury Bills (MTBs) to undertake borrowing from the domestic resources. According to these calendars, overall, the federal government has planned to borrow Rs 7.025 trillion from the banking sector during Oct-Dec of FY23 for its financial requirements.

Major amount will be borrowed from conventional banking system through the auction for T-bills and PIBs while a small amount will be raised from Islamic banks.

Overall banking assets: Market share of IBI assets surges to 19.5pc

According to the SBP, an amount of Rs 300 billion will be borrowed from Islamic Banking Industry (IBI) through the auction for five-year Government of Pakistan Ijara Sukuk (GIS) Fixed Rental Rate and Variable Rental Rate. An amount of Rs 90 billion will be raised through GIS Fixed Rental Rate and Rs 210 billion through GIS Variable Rental Rate.

As per the auction target calendar for the sale of GIS some three auctions will be held in Oct-Dec 2022 for all Islamic banks and commercial banks with Islamic banking branches. The first auction will be held on October 20, 2022 with a target of Rs 100 billion, while the second auction is scheduled for Nov 10, 2022 for borrowing another Rs 100 billion and the last auction will be conducted on December 1, 2022 for another Rs 100 billion.

The IBI has over 19 percent share in the overall banking industry and they have sufficient liquidity space, therefore, it is being expected that Rs 300 billion will easily be borrowed from the IBI through Ijara Sukuk. The federal government intends to borrow Rs 850 billion through the auction for long-term investment bonds during the second quarter of this fiscal year.

An amount of Rs 525 billion will be raised through the sale of 3-year, 5-year, 10-year, 20-year and 30-year Pakistan Investment Bonds (PIBs) in three auctions scheduled for Oct 12, Nov 29 and Dec 21, 2022. Each auction will be of Rs 175 billion.

Moreover, some seven auctions (Rs 50 billion each) for sale of PIB floating rate of 5-year, 10-year and 20-year tenors have been planned during Oct-Dec 2022.

The federal government intends to borrow Rs 5.850 trillion from the domestic banking sector through the sale of Market Treasury Bills (MTBs) of 3-month, 6-months & 12-month tenors.

The auction for MTBs will be held on fortnightly basis and overall 7 auctions have been announced by the State Bank for the second quarter of the current fiscal year. The first auction for the bills has already been conducted on Oct 5, 2022 while the second auction is scheduled for Oct 19 for the sale of MTBs worth Rs 1.1 trillion. The third auction will be held on Nov 2, with a target of Rs 600 billion.

The fourth auction on Nov 16, 2022 aims at raising Rs 650 billion. The federal government has planned to raise Rs 850 billion on Nov 30, 2022 viz sale of MTBs. The sixth auction for T-Bills has been scheduled for Dec 14, 2022 with a target of Rs1.35 trillion and the last auction for short-term government papers for Rs 650 billion will be held on Dec 28, 2022.

Meanwhile, the SPP conducted the auction for the sale of PIBs and borrowed Rs 228 billion against the target of Rs 175 billion.

Copyright Business Recorder, 2022