ISLAMABAD, May 29: The government has decided to float a new short-term bond to raise up to Rs300 billion for budgetary support in the next financial year.

Sources told Dawn on Thursday that the finance ministry had finalised the draft financial paper, the title of which would be approved by the National Economic Council (NEC) in its meeting on June 2.

This would be some kind of a bond which could be held and pledged for borrowing, a source said, adding “it will be sold to public sector entities, pension funds, benevolent funds, etc.”

Investors, who would be free to encash the paper any time, would be offered “a reasonable rate of return”.

The sources said it would be a “need-based” instrument to be issued in smaller tranches by the federal government to meet its funding requirements during the next financial year.

The objective is to manage an accumulative Rs300 billion funding for the new budget.

The sources said there was around Rs1,800 billion (Rs1.8 trillion) funding requirement for the new budget which needed to be met from various government and non-government sources.

It would also include about 70 per cent foreign funding from donor agencies.

For the current financial year, the previous government had borrowed Rs300 billion from the central bank.

A decision has been taken that the government would not make unnecessary borrowing from the State Bank of Pakistan in 2008-09 so as to remove some of the concerns of the World Bank and the IMF.

The sources said that the government had dropped the idea of direct borrowing from commercial banks as it involved guarantees and was also opposed by the international financial institutions.

The government had also proposed to keep the size of the new Public Sector Development Programme (PSDP) at last year’s level of Rs535 billion which also included funding for provinces, the sources said.

The federal PSDP component was expected to be Rs435 billion which was the same in 2007-08.

The Annual Plan Coordination Committee (APCC) in its meeting on May 23-24 could not decide the size of the PSDP. However, it tentatively agreed to have Rs285-300 billion PSDP.

Since the government was facing serious financial crunch, the Priority Committee of the Ministry of Finance had proposed Rs287 billion new PSDP.

The issue would be decided by the NEC, the highest body on economic decision-making. The government planned to manage its income and expenditure aspect in the new budget by ensuring that only the much needed subsidies should be offered to the people.

Also, recurring budget would be restricted by rationalising the overall expenditure during the next financial year.

The sources said that the Federal Board of Revenue (FBR) has finalised its plan and given to the ministry of finance to generate Rs1.25 trillion taxes during the next financial year against Rs990 billion of 2007-08, showing 15 per cent growth in revenues.

The FBR had revised downward its revenue collection target from Rs1.025 trillion to Rs990 billion because it was facing over Rs35 billion shortfall during the current financial year, ending on June 30.