Although, the Federal Board of Revenue has made utmost efforts to get tax revenue target of Rs 1,952 billion set for last fiscal year 2011-2012 (FY12), the services tax collection by Sindh province has upset FBR's actual revenue target. In addition, the Ministry of Finance has also estimated a budget deficit of Rs 1.105 trillion for FY13.
Similarly, foreign inflows are also on decline and remain less than target. The SBP has already warned that if external inflows not released timely, there is a risk of further substantial government borrowing from banking system, which will make liquidity management more challenging.
In the scenario, when the government is facing revenue shortfall and expenditures are increasing gradually, it leaves only one option for the government to borrow from banking system to meet deficit, they added. The State Bank of Pakistan has issued three calendars for the auction of Ijara Sukuk, Pakistan Investment Bond (PIBs) and Market Treasury Bills (MTBs) and according to these calendars, the federal government has planned to borrow Rs 1.635 trillion form banking sector during July-Sept of FY13 to fulfil its financial requirements.
The planned borrowing during the first quarter of FY13 is some 51 percent higher than a quarter earlier. During April-June of FY12, the government's plan was to borrow Rs 1.085 trillion as compared to Rs 1.635 trillion in July-Sept of FY13, depicting an increase of Rs 555 billion.
According to the SBP, an amount of Rs 45 billion will be borrowed from Islamic Banking Industry (IBI) through auction of Government of Pakistan Ijara Sukuk in July-Sept of FY13. Pre-auction target of Ijara Sukuk for first quarter of current fiscal year has been issued by the Central Bank, which indicates that auction for the sale of Islamic Bond will be held on Sept 11, 2012 and the target has been set at Rs 45 billion, however maximum value of the asset under the issuance programme of the Ijara Sukuk is Rs 47.81 billion.
The IBI has about seven percent share in overall Islamic Banking industry and they have limited liquidity space. Therefore, only Rs 45 billion borrowing target has set through Ijara Sukuk. While remaining amount will be borrowed from conventional banking through auction of T-bills and PIBs.
Through PIBs auction, the federal government is intending to borrow Rs 90 billion. First auction of 3, 5, 10 (fresh issue of July 19, 2012) and 20 years long term investment bonds will be held on July 4, 2012 with target amount of Rs 30 billion. Another, Rs 30 billion target has been set for the second auction, will be held on Aug 1, 2012 and third auction with be on Sept 12, 2012 with the same amount.
In addition, the government has planned to borrow Rs 1.5 trillion from banking sector (other than Islamic Banking industry) through sale of Pakistan Market Treasury Bills of 3-Months, 6-Months & 12-Months in first quarter of FY13. Auction of MTBs will be held fortnightly and totalled 6 auctions have announced by the State Bank for the July-Sept period of current fiscal year. The first auction of the bills will be on July 11, 2012 for sale of Rs 225 billion worth MTBs while the second will be held on July 25, 2012 with a tentative target of Rs 275 billion.
Two more auctions will be held on Aug 8 and Aug 22, 2012 with a target of Rs 300 billion and Rs 250 billion respectively. While some two auction have planned as on Sept 5 and Sept 19, 2012 to borrow a totalled amount of Rs 450 billion. It may be mentioned here that SBP has already pointed out that in the absence of external financing, excessive reliance on costlier domestic resources for financing these fiscal imbalances is increasing the country's debt servicing burden, and hence complicating debt management and in the presence of persistent revenue and primary deficits incurred by the country during the past several years, such an increase in debt servicing implies further increase in borrowing requirements - a situation which may push the country into a debt trap.