Karachi: Govt eyes Rs7 trillion via diverse Prize Bonds for finance.
This is in response to the destruction brought on by the floods and the requirement to raise additional funds to deal with their aftershocks.By issuing long-term, 3-year, and 5-year Pakistan Investment Prize bonds on Wednesday, the government raised Rs 218.3 billion in additional funding, above the previously stated objective of Rs 175 billion (PIBs).
After a considerable period of time, the PIBs cut-off yields—the interest rate commercial banks charge the govt for borrowing money—fell by eight basis points on the 3-year bond and by 30 basis points on the 5-year bond. The govt was able to borrow more money than planned thanks to the drop because there was still a strong demand for funding.
As economic activity has now slowed down due to the floods, rehabilitation efforts have not only raised the demand for finances but may also result in a decrease in tax income collection. As a result, the government will rely more on domestic debt, leading to a bigger budget deficit.
According to experts
Commercial banks lowered their cut-off rates downward for the most recent PIB auction. On Monday, the central bank maintained its benchmark policy rate at 15% for the upcoming seven-week period.
The banks bid Rs662 billion in the most recent auction, compared to the government’s objective of Rs175 billion.
By selling the 3-year PIBs, the govt exceeded its objective of Rs60 billion and raised Rs80 billion. At the auction, the bond’s cut-off yield decreased to 13.83% from 13.92% at the previous auction, which conducted on September 14, 2022.
By selling the 5-year PIBs, the government was able to borrow an additional Rs110 billion in addition to the intended Rs60 billion. In contrast to the previous auction, where the cut-off yield for the Prize bonds was 13.39%, 13.09% was used in this auction.
In the most recent auction, the govt received no offers for the 15, 20, and 30-year Prize bonds despite raising an additional Rs 28 billion through non-competitive bids. Ten-year PIB bids were also rejected.
Government has set a goal of raising Rs7.025 trillion
On the other hand, the government has set a goal of raising Rs7.025 trillion over the next three months through the issuance of Sukuk (Shariah-compliant Prize bonds), three-year to 30-year PIBs at fixed and variable rates, and three-month to 12-month T-bills.
In the meantime, the Pakistani rupee ended a 13-day gaining streak as it fell 0.04% (or Rs0.09) on Wednesday to close at Rs217.88 against the US dollar in the interbank market.
In the previous 13 working days, the domestic currency had increased by a total of 9.14% (or Rs21.96).
According to experts, a decline in export revenues and a drop in worker remittances from Pakistan abroad pushed traders to purchase foreign currency at a higher rate in order to pay for imports.
They predicted that the rupee would short-term stabilize around its current levels and then possibly resume an upward trend if Finance Minister Ishaq Dar and the IMF agreed to relax conditions and the nation experienced an early influx of pledges from creditors and the international community in relation to flood relief efforts.
