Pakistan to raise PKR 6.8 trillion to address fiscal deficit

The State Bank of Pakistan (SBP) has announced plans to raise approximately PKR 6,800 billion from February to April to meet domestic borrowing needs and address the fiscal deficit.

The auction plan includes a target of nearly PKR 2,900 billion for treasury bills and PKR 3,925 billion for Pakistan Investment Bonds. According to SBP data, PKR 1,050 billion of these bonds will be sold at a fixed rate, while PKR 2,875 billion will be floating-rate Pakistan Investment Bonds. The maturity amount during this period is around PKR 3,092 billion.

Treasury bills and Pakistan Investment Bonds have seen substantial declines in cut-off yields over this period. The three-month treasury bills experienced a drop of 894 basis points (bps) to 11.76%, six-month bills declined by 936bps to 11.64%, and one-year bills fell by 938bps to 11.46%.

The yields began to decrease from the start of 2024 as market anticipation grew around a policy rate decline. Inflation started to recede in January last year, allowing the central bank to cut interest rates. The first rate cut occurred in June, and since then, the policy rate has been reduced by 1,000bps to 12%.

Currently, the inflation rate is at a decade low of 2.7%, with real interest rates around 9.3%. The cut-off yield for three-year Pakistan Investment Bonds has dropped by 507bps to 11.66% since last January, five-year bonds fell by 323bps to 12.24%, and 10-year bonds decreased by 201bps to 12.16%.

While the decline in cut-off yields has slowed in recent auctions, most analysts believe the policy rate will reach single digits by December, with the majority of cuts occurring in the first half of 2025.