ISLAMABAD: The finance ministry is hopeful of achieving annual fiscal targets as half year (July – December) 2020/2021 fiscal position indicates that it will remain on track in the remaining half.
The ministry of finance on Monday issued Mid-year Budget Review Report for Fiscal Year 2020/2021. The finance division said that the fiscal consolidation measures taken by the government had resulted in financial discipline, higher revenues and controlled expenditures.
“The same strategy will be followed during the remaining period of the current fiscal year to achieve the fiscal sustainability,” it added.
The continuity in fiscal consolidation, stable exchange rate, improved current account and better financial management, present a promising economic outlook, the finance division said.
It said that the borrowing operations remained quite successful and in-line with the Medium-Term Debt Management Strategy (MTDS FY20 — FY23) of the Government. Government is following the policy of zero borrowing from SBP since July 2019 and is maintaining a cash buffer with SBP for meeting the contingencies/ obligations.
Following are the key highlights:
Similar to last year, domestic borrowing was made entirely from the financial markets during first half of current fiscal year. No borrowing was made from SBP. In fact, an amount of Rs. 285 billion was repaid to SBP during first half of ongoing fiscal year.
All borrowings needed to finance the fiscal deficit were made through longer-term debt while Government retired a portion of short-term debt (T-Bills) by around Rs. 579 billion during this period.
The government introduced various new instruments during first half of the current fiscal year to further develop the government securities market, attract more diversified investor base and to provide more flexibility and options to the investors as well as to the government.
— 3, 5 and 10-year floating rate PIBs with quarterly coupon payment frequency are being issued since October 2020.
— the government has started issuance of 5-year Sukuk with fixed rate rental payments since July 2020.
— The government also introduced 2-year floating rate PIBs in November 2020 with quarterly coupon payment frequency and fortnightly interest rate resetting. Existing Floating Rate PIBs carry interest rate reset of 6-month while interest rate reset in this instrument in only two weeks.
Similar to conventional bond, the government introduced re-opening mechanism in Sukuk auctions in July 2020 to increase liquidity of the Sukuk issue and lower costs for the government.
Considering the encouraging participation and demand from the market in the recent auctions of 15 and 20-year PIBs, the government has decided to issue 30-year PIBs with effect from January 2021.
In order to enhance participation and competition in primary and secondary markets for government debt, the government banned all institutional investors in National Savings Schemes from July 2020; and
Most of the external debt was raised from multilateral and bilateral sources on concessional terms (low cost and longer tenor).