KARACHI: In 2024, the government generated an additional Rs1.4 trillion by selling Pakistan Investment Bonds (PIBs) and borrowed Rs2 trillion through stock exchange sukuk (Islamic bonds) auctions.
By choosing long-term borrowing over short-term domestic bonds, the government has been attempting to reorganize its debt profile.
A Topline research report states that “the government raised Rs2tr from sukuk auctions using the PSX auction system in 15 auctions in 2024.”
Since banks are now keen to lodge their liquidity in government accounts since they offer the greatest returns, bankers claim that the government was successful in borrowing money for the long run.
By the end of this year, cumulative borrowing through PSX will total Rs3.7 trillion.
Since inflation began to decline in June, the State Bank has been lowering interest rates steadily, bringing them down from a peak of 22% to 15%. Given that inflation has already dropped to 4.9%, a significant interest rate cut is probably imminent. At 10%, the real interest rate is positive once more.
On Tuesday, December 3, the final auction of 2024 raised the most money. According to the article, 60% of the Rs353 billion it raised came from a 10-year Sukuk bond.
It reflects the growing need for liquidity by the government, the rise in long-term borrowing, and the desire of banks to invest their funds at greater rates.
Five-year Sukuk was used to raise Rs800 billion, or 38% of the total capital. According to the research, Sukuks accounted for 74% of this variable rate and fixed rates for 26%.
The government borrowed Rs1.438 trillion this year through 11 PIB auctions, according to data from the central bank. PIBs typically have maturities of three to ten years, while some bonds also mature in two years.
In order to raise Rs300 billion, another PIB auction is planned for December 18. This means that the total number of PIBs could reach Rs1.7 trillion this year.
According to other projections, by the end of this year, the total amount that needs to be raised through PIBs and Sukuk bonds would be Rs3.7 trillion.
This stands in contrast to the government’s plan to halt the borrowing trend in fiscal year FY25. When the government’s account grew with inflows of Rs2.7 trillion from the State Bank, it first turned down a plan to borrow money through domestic bonds.
However, in the first four months of FY25 (July to October), the Federal Board of Revenue failed to fulfill the collection target, resulting in a shortfall of Rs200 billion. Independent economists assert that the loss is more than Rs400 billion.
The government has been forced to borrow more money from banks as a result of this deficit.
Against a target of Rs2.1 trillion, the government raised Rs2 trillion with participation of Rs6.2 trillion in all 15 Sukuk auctions.
