Govt to Borrow Via Instruments Other Than Sukuks, NPCs As Money Problems Persist

The government has decided to re-pledge assets approved by the cabinet for Sukuks and Investment in Islamic Naya Pakistan Certificates (INPCs) for other government Islamic financing transactions. The Finance Division informed the federal cabinet on February 22, 2023, that the government was permitted to borrow under Article 166 of the Pakistani Constitution, reported Business Recorder. The Finance Division will also be able to raise debt through domestic government securities, bank loans, or any other domestic borrowing instruments other than those issued by the Central Directorate of National Savings. Because of increased deficit financing, the government has been facing issues with its cash balances. Debt raised through auctions of GoP securities was contingent on bank participation, but due to recent market changes such as an increase in the SBP’s policy rate and an ADR (Advances-to-Deposits Ratio)-related tax, banks were hesitant to participate in auctions. Furthermore, borrowing from SBP has been restricted following amendments to the SBP Act. As a result, the government’s funding options had been limited. Pertinently, various banks have expressed concerns about the challenges the banking sector is facing thus prompting the government needed to diversify its funding sources and initiate direct credit lines from both Islamic and conventional banks or other financial institutions to meet its funding needs as and when they arose. On June 21, 2022, the Cabinet approved the use of certain assets for the issuance of international and domestic Sukuks and INPCs. Based on the government’s need for funds, the same assets that were previously approved via Cabinet decision can now be used to raise other Islamic financing lines for the Government of Pakistan. Now, the Finance Division has asked the cabinet to help solicit domestic financing through direct bank/non-bank credit lines, to acknowledge that assets approved by the cabinet in June 2022 for Sukuks and INPCs can be used for other Islamic transactions, and to provide an exemption from adhering to Public Procurement and Regulatory Authority Rules (PPRA) 2004 in order to procure bids directly from banks and other institutions.