Pakistan is poised to secure a substantial Rs10.10 trillion in bank loans through the sale of treasury bills and bonds during the second quarter (October-December) of FY2025, as it grapples with rising funding demands to finance its budget deficit and meet outstanding debt obligations.
According to the auction target calendar released by the State Bank of Pakistan (SBP) on Tuesday, the government plans to raise Rs5.2 trillion through short-term Market Treasury Bills (MTBs) with maturities of three, six, and 12 months. In addition, the government intends to borrow Rs4.9 trillion through the issuance of Pakistan Investment Bonds (PIBs), offering both fixed and floating rates, with maturities spanning two, three, five, and ten years. These bonds will be sold to commercial banks.
It is important to highlight that Pakistan has recently initiated a T-bill buyback program to reprofile its debt and alleviate the burden of debt servicing costs. Despite this, the government aims to amass significant sums from domestic markets in the coming quarter to cover Rs8.82 trillion in maturing T-bills between October and December.
In a notable move earlier this week, Pakistan repurchased T-bills for the first time, securing Rs351 billion, although the initial target was set at Rs500 billion. This decision followed better-than-anticipated inflation data, with the Consumer Price Index (CPI) dropping to 6.9% in September, the lowest level recorded since January 2021, a marked improvement from August’s 9.6%. Several factors contributed to this disinflationary trend, including a high base effect, declining global commodity and energy prices, and a stable exchange rate for the local currency.
The steep decline in inflation created a stir in the money markets, leading to heightened participation from funds and corporations on the buying side. According to analysts, yields on bonds and notes fell by 15 to 30 basis points across most maturities following the SBP’s buyback of T-bills, as well as the rejection of last week’s auction. The 10-year Pakistan Investment Bond closed at 11.88% on Tuesday.
Looking ahead, inflation is forecasted to remain in single digits over the coming months, bolstering the case for further rate cuts by the SBP, which has already reduced rates by 450 basis points since June. Analysts predict that the SBP will continue its monetary easing, potentially reducing rates by an additional 200 basis points in its upcoming November and December meetings.
“As Pakistan enters the 37-month International Monetary Fund (IMF) programme under the Extended Fund Facility, we expect the external account to remain fully funded. This, coupled with the accumulation of foreign exchange reserves and a lower likelihood of fiscal slippage, strengthens our expectations for currency stability,” said Awais Ashraf, Director of Research at AKD Securities Limited.
Ashraf also projected a significant reduction in inflation, predicting it would drop below 8% year-on-year (YoY) for FY25, compared to 23.8% YoY in FY24. He attributed this to the ongoing disinflationary trend, lower oil prices, and a more stable political environment. These factors, he noted, would provide the SBP with the flexibility to pursue aggressive monetary easing, with interest rates potentially settling around 12-13% by the end of the fiscal year.
