ISLAMABAD    -    The government has decided to issue short term bonds and Sukuks to raise resources from the international market to build foreign exchange reserves of the country.

The federal cabinet has allowed ministry of finance to initiate Medium-Term Notes (MTN) programme covering both Eurobonds and Sukuk.

“The federal cabinet has decided to constitute legal team to review the process of issuing Eurobonds and Sukuk,” said an official of the ministry of finance. He further said that size of the bonds has not decided yet, as the government would review the market situation first.

The federal government in annual budget for current fiscal year 2019-20 had projected to generate Rs450 billion (around $2.8 billion) for the Sukuk bonds.

However, it had not estimated any amount from the Eurobonds in the budget documents during current fiscal year. The amount generated from Sukuk and Eurobonds would help in building the country’s foreign exchange reserves.

Pakistan’s foreign exchange reserves had started increasing after receiving first tranche worth $991.4 million from the International Monetary Fund (IMF). Pakistan would receive $6 billion from the IMF in next three years.

Meanwhile, the Asian Development Bank (ADB) has planned to support Pakistan with indicative lending of up to $10 billion for various development projects and programmes during the next five years. The ADB plans to provide about $2.1 billion out of $3.4 billion funds to support Pakistan’s reform and development programmes during fiscal year 2019-20.

The SBP had already received inflow of $500 million from Qatar as placement of funds. Qatar had committed to place $3 billion in SBP’s account on the request of government of Pakistan. Similarly, the deferred oil payment facility from Saudi Arabia had also started from July 2019.

The Saudi Arabia would provide oil worth $3.2 billion on deferred payment facility for one year, which would ease pressure on the country’s foreign exchange reserves.

According to the IMF estimates, the external debt and liabilities will be increased by over $20.5 billion during three-year period under the IMF programme going up from $104.165 billion by end of fiscal year 2018-19 to $124.688 billion in financial year 2021-22.

The IMF has projected that total public and guaranteed debt would go up by Rs11,000 billion from Rs30,000 billion in 2018-19 to Rs41,799 billion in 2021-22. The fiscal deficit is projected to decline in line with the Fiscal Responsibility and Debt Limitation Act (FRDLA) deficit target as the authorities’ broad-based tax policy and administration reforms take hold.

These measures will place general government debt on a declining path, reaching 67 percent of GDP by FY 2024, after peaking at 80.5 percent of GDP in FY 2020.