KARACHI: The government will raise Rs5.7 trillion through the auctions of treasury bills in the next two and a half months mainly to pay back domestic debts.

Islamabad is unable to reduce its domestic debt as interest payments constitute the largest share in the annual budget.

The government’s reliance on bank borrowing is not enough since the International Monetary Fund (IMF) has been demanding that it must generate additional Rs600 billion revenue in 2022-23.

The government is under pressure from the IMF for additional revenue generation as the country’s economic managers appear unable to find new avenues for tax and non-tax revenue. Inflation hit 27pc in January, which means higher taxes will erode people’s purchasing power.

Trade and industrial groups have declared that inflation is making it impossible for their products and services to remain competitive in both domestic and international markets. There is a fear that costly local products can create space for smuggled products in Pakistan while Bangl­adesh and India try to capture the international markets.

With the external borrowing pushing the country towards default, the domestic debt has caused a huge debt servicing cost. The country needs to pay Rs5.2tr in debt servicing in the current fiscal year.

The government will raise the funds at a high cost since the cut-off yield has gone up with the interest rate hike. The State Bank of Pakistan (SBP) increased the interest rate to 17pc in January. After the increase, the government borrowed Rs851 billion through treasury bills at the rate of 17.93pc.

The government will raise Rs5.7tr between February 8 and April 19.

Published in Dawn, February 4th, 2023