The government raised a record
As opposed to the average of
Currently, the government’s domestic debt stands at
“This requires frequent rollovers and refinancing, which poses risks. In the third quarter of the current fiscal year the government intends to raise
He added that the government is changing its focus to longer tenure bonds. “We think the trend is positive and will reduce the country’s dominance on the short-term floating debt.”
The cut-off yields for the three, five and seven-year bonds remained at 12.09%, 12.55% and 12.89% respectively. The three-year instrument received the highest interest from investors with
According to KASB Securities’
However, there is a drawback of raising huge amounts through PIB auctions. The government will crowd out the nascent recovery in private-sector credit.
“As banks are operating with limited liquidity, they must choose between lending to either the government or the private sector. PIBs seem favourable to the banking sector (currently) as they offer higher yields than corporate lending without the risk of non-performing loans,” Khan said.
Moreover, since most analysts agree that the discount rate will remain at the current level of 10% in the near future, the risk of capital losses on the bond portfolio are also reduced. From the government’s perspective, issuing PIBs is raising the cost of fiscal financing, Khan observed. However, with limited funding options, the government will likely continue with this policy in 2014, he added.
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