Government may borrow US$500mn more to finance budget deficit

Secretary Finance Dr Waqar Masood said Wednesday that the government was considering borrowing $500 million from the international market through issuance of Sukuk Bonds against Islamabad Lahore Motorway to finance the budget. Briefing a meeting of Senate Standing Committee on Finance presided over by Senator Saleem Mandviwalla, Dr Waqar Masood stated: “If the things further improves, we will take Sukuk Bonds to $1.5 billion.”

He added that the government has raised $2 billion loans through Sukuk Bonds from the international market against $2.5 billion asset of Islamabad-Lahore Motorway. The government, he said, has been borrowing through issuance of Treasury Bills, Pakistan Investment Bonds and public money from National Savings Schemes to finance the budget. Moreover, he said the government has also been getting some external borrowing from international financial institutions for the purpose.

The Secretary Finance stated, “as there is another opportunity to get financing from international market, we decided to issue $1 billion Sukuk Bonds against the offer of $2.4 billion and the total value of motorway’s asset of $2.5 billion.” Masood said tensions on the Line of Control (LoC) at the time of issuance of Sukuk Bonds sent a wave of concern to investors and affected the price as well but still the government was able to issue it at 5.5 percent for a period of five years.

The Secretary Finance also claimed Pakistan’s total external debt stood at $57.7 billion by June 2016 and Sukuk Bonds borrowing will not contribute to increase in external debt because at the same time some foreign debt was also retired. He said of the total $46 billion China Pakistan Economic Corridor (CPEC), $11 billion are soft loans at less than 2 percent interest rate and the remaining $35 billion are investment of private companies in the energy sector. He said soft loans are for infrastructure projects.

He informed the committee that the government issued $1 billion bonds in 2014 at a rate of 6.75 percent for a period of five years against Islamabad-Chakwal section of the motorway. On October 5, 2016, the government issued a 5-year $1 million Sukuk (Ijara) at a yield of 5.5 percent against the asset of Hafizabad-Lahore section of motorway. He said the government still had $500 million Sukuk Bonds.

A team of Citi Bank, Standard Chartered, Noor Bank, Dubai Islamic Bank and Deutsche Bank was appointed as Joint Lead Managers on 21st September, 2016 through open competitive bidding to structure and execute the Sukuk transaction. Privatization Commission Chairman Muhammad Zubair stated that government informed the committee on latest status of Pakistan Steel Mills and stated a proposal is in the process to give Pakistan Steel Mills to either Chinese or to Iran on lease. He told mediapersons after the meeting that total losses of PSM have piled up to Rs 220 billion and no one was ready to accept the steel mill at very soft term.

The government does not want to fetch any price from PSM and its sole purpose is to restructure it and start production. “You can not fetch a very reasonable price,” Zubair said, adding that the mill fetched Rs 23 billion price in 2006 when Rs 8 billion were parked in its balance sheet. “PSM is most difficult in terms of response for sale or as no one is interested to get involved in it,” he said and termed even lease as “challenging”.

He said before October 2015, all the due diligence and other formalities were completed and the privatization plan of PSM was presented to the Cabinet meeting after taking approval from the PC board. The Cabinet decided that PSM should be offered first to the Sindh government and stopped PC from proceeding ahead with its privatization plan. Subsequently, he said a meeting of the Cabinet Committee on Privatization (CCoP) offered Sindh government to take the PSM but failed to get any response. He said the government was able to enhance PSM capacity to 60 percent through Rs 18.5 billion restructuring plan but its gas was disconnected by Sui Southern Gas Company Limited.

Eventually, Zubair said now in July 2016, a Cabinet meeting decided to restart the process and the Privatization Commission is considering both the options. “PSM is non-operational, bleeding with its liabilities piling up along with 15,000 employees. He said the government does not have any plan to privatise the State Life Insurance Corporation.