KARACHI: The government borrowed Rs2 trillion through auctions of sukuk (Islamic bonds) at the stock exchange and raised another Rs1.4tr by selling Pakistan Investment Bonds (PIBs) during 2024.

The government has been trying to restructure its debt profile by opting for long-term borrowing over short-term domestic bonds.

“In 2024, the government raised Rs2tr from sukuk auctions using the PSX auction system in 15 auctions,” according to a Topline research report.

According to bankers, the government succeeded in borrowing for the long term since banks are now eager to park their liquidity in government accounts as they promise the highest yields.

Cumulative borrowing via PSX to reach Rs3.7tr by end of this year

The State Bank has been consistently slashing the interest rate after inflation started coming down in June, bringing it to 15 per cent from a high of 22pc. Since inflation has now declined to 4.9 per cent, another big cut in interest rate is quite likely. The real interest rate is once again positive at 10 per cent.

The largest quantum of funds were raised at the last auction of 2024 on Tuesday (Dec 3). It fetched Rs353 billion, with 60 per cent of the funds raised through a 10-year Sukuk bond, said the report.

It indicates the government’s increasing need for liquidity, increasing long-term borrowing and banks’ keenness to invest their money at higher rates.

Thirty-eight per cent of the funds, or Rs800bn, were raised through five-year Sukuk. Of this variable rate Sukuks were 74 per cent and fixed rate were 26 per cent, the report added.

According to the central bank’s data, the government borrowed Rs1.438tr this year through 11 auctions of PIBs. The PIBs usually range between three and 10 years while some bonds mature in two years as well.

Another auction of PIBs is scheduled for Dec 18 to raise an amount of Rs300bn, meaning the total amount of PIBs could reach as high as Rs1.7tr during this calendar year.

Further calculations show that the cumulative amount to be raised through Sukuk bonds and PIBs would reach Rs3.7tr by the end of this year.

It contrasts with the government’s fiscal year FY25 strategy to arrest the borrowing trend. Initially it rejected a proposal to borrow through domestic bonds as the government’s account swelled with inflows of Rs2.7tr from the State Bank.

But the failure of the Federal Board of Revenue to meet the collection target led to a shortfall of Rs200bn in the first four months of FY25 (July to October) while independent economists claim the shortfall is over Rs400bn.

This shortfall has compelled the government to increase borrowing from banks.

In all 15 auctions of Sukuk, the government received participation of Rs6.2tn against a target of Rs2.1tn and raised an amount of Rs2tn.

Published in Dawn, December 5th, 2024