Govt to raise Rs7 trillion through bonds

The government has targeted raising over Rs7 trillion by selling various short and long-tenure sovereign bonds to financial institutions over the next three-month period (October-December). This is in response to the devastation caused by the floods and the need to generate more financing to address its aftershocks. On Wednesday, the government borrowed Rs218.3 billion against the pre-announced target of Rs175 billion by selling long-term – 3-year and 5-year Pakistan Investment Bonds (PIBs). The PIBs cut-off yields (commercial banks’ interest rate on financing to the government) fell by eight basis points on the 3-year bond and 30 basis points on the 5-year bond after quite a long gap. The drop created room for the government to borrow more than its set target as demand for financing remained high. Rehabilitation efforts being made after the floods have not only increased demand for funds but may also cause a drop in collection of tax revenue as economic activities have since slowed down. Accordingly, the government’s reliance on domestic debt will surge and cause an increasing fiscal deficit.