KARACHI: In a bid to strengthen its financial standing, the government of Pakistan is gearing up to unveil yet another Sukuk auction calendar, eyeing a substantial sum of up to Rs 110 billion through 03 and 05-year variable and fixed rate Sukuk.

Scheduled for December 21, 2023, the auction is slated to occur under the auspices of the State Bank of Pakistan and the asset that would be utilized for this Sukuk issuance is Islamabad Sports Complex.

Over the past decade, Islamic finance, particularly Sukuk, has emerged as an innovative instrument within the capital market. This period has witnessed a notable rise and recognition of Sukuk as a distinctive financial tool that has enabled the Government to seek low-cost funding sources while adhering to Islamic principles.

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This announcement follows a particularly successful Sukuk auction on December 08, 2023 where Rs 30 billion was raised at a yield of 19.5 percent — which is surprisingly 2.5 percent below the policy rate of 22 percent. The overall Sukuk subscription surpassed expectations by an impressive 13 times and the financial maneuver resulted in a substantial annual savings of Rs 750 million for the government of Pakistan. Additionally, another Sukuk auction held on November 30, 2023, conducted through the State Bank of Pakistan, saw the Government raising Rs 167 billion at a yield as low as 15.75 percent and 16.19 percent in some cases, contributing to a total saving of at least Rs 04 billion for the Government coffers.

Remarkably, since 2020, the Government has successfully raised nearly Rs 4.3 trillion through Sukuk issuances, all priced below prevailing policy rates.

This raises the question of how Islamic Banks, in this monetary policy regime with a high policy rate, can offer rates as low as 15.75 percent and 16.19 percent. When an Islamic Bank representative was asked for their opinion on this anomaly, they responded that under the current regulatory framework, Islamic Banks are only obliged to distribute profits to their depositors up to the extent of their earnings from that pool of funds.

Copyright Business Recorder, 2023