Pakistan govt borrows over twice the target in bond auction amid stable rates

Pakistan’s government raised PKR 639 billion through bond sales - more than double its target of PKR 300 billion, according to official data.

This marked the first bond auction since the central bank maintained the benchmark interest rate at 11% for a second consecutive month.

Cut-off yields rose by 24 basis points for the two-year bond, 9 basis points for the three-year, and 5 basis points for the five-year. However, yields on the 15-year bond fell by 5 basis points.

Earlier this month, the Finance Ministry announced plans to raise PKR 5.575 trillion over the next three months through treasury bills and bonds. This includes PKR 2.4 trillion via Pakistan Investment Bonds—PKR 1 trillion from fixed-rate instruments and PKR 1.4 trillion from floating-rate bonds—along with PKR 3.175 trillion from short-term treasury bills.

Meanwhile, credit to businesses and individuals increased by 12.8% year-on-year, supported by easier access to finance and improved economic activity. The growth spanned various lending categories, including working capital, long-term investments, and personal loans.

Key borrowing sectors included textiles, telecom, and wholesale/retail trade. Additionally, the currency-to-deposit ratio rose in July, reversing a decline recorded in June.

The State Bank of Pakistan reported improvements in both fiscal and primary balances for FY2024–25, attributing gains to stronger revenues and restrained government expenditures. However, a shortfall in external financing has heightened dependence on domestic borrowing.

Looking ahead to FY2025–26, the government aims to achieve a primary surplus of 2.4% of GDP as part of its fiscal consolidation strategy.

The central bank expects economic growth to gain momentum in the coming year, driven by earlier interest rate cuts. Still, it warned of potential risks, including a widening trade deficit, weak financial inflows, and the inflationary impact of proposed budget measures that may increase import demand.