The government has sought permission of the federal cabinet to pledge the country’s major airports and road network to raise around Rs1.8 trillion worth debt in the next fiscal year to finance budget deficit and at the same time save some interest cost.
In its revised list of assets that the Ministry of Finance wants to give in collateral to international and domestic lenders, the government has dropped Fatima Jinnah Park, Islamabad. But three motorways, three international airports and Islamabad Expressway have been added in the list, said sources in the Ministry of Finance.
The finance ministry has placed a request before the federal cabinet that in order to support the government’s budgetary position and promote Islamic banking industry it intends to issue Ijara Sukuk in the domestic and international markets.
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The federal cabinet will take a decision today (Tuesday). The asset-backed borrowings carry relatively less cost compared with conventional debt.
The finance ministry has requested the cabinet that there is an urgent need to identify new unencumbered assets to ensure uninterrupted issuance of Ijara Sukuk in the domestic as well as international capital markets. The debt raised through the Sukuk bonds, which are backed by the government’s assets, costs relatively less than the conventional bonds.
The federal cabinet had directed in January this year to identify options of underlying assets for Sukuk issuances.
The Ministry of Finance has identified M-1 (Islamabad-Peshawar) and M-3 (Pindi-Bhatian-Faisalabad) motorways, Islamabad Expressway and Islamabad, Lahore and Multan international airports. It also wants to pledge the only remaining section of the Lahore-Islamabad motorway to borrow from the lenders, said the sources. At present Islamabad-Chakwal section of M2 Motorway is unencumbered and the rest of the motorway has been pledged against the debt. The M1 and M3 are also free of any charges.
The finance ministry had requested the National Highway Authority (NHA) and Civil Aviation Authority (CAA) to grant no objection certificates to utilise these assets for raising debt.
The CAA has not yet responded while the NHA has demanded compensation for using its assets to raise debts. The Ministry of Finance has requested the federal cabinet that it may be given permission to pledge these assets without payment of compensation to any of the departments.
Although, the government has not yet updated the revised valuation of these assets, the finance ministry has assessed their value at Rs2.2 trillion on the basis of old valuations and some latest estimates in case of airports.
The sources said that the Ministry of Finance plans to raise Rs1.76 trillion worth debt through issuance of domestic and foreign Islamic bonds. This includes $3.5 billion or Rs560 billion foreign Sukuk.
The finance ministry has estimated the value of Lahore airport at Rs980 billion or $6.1 billion, Islamabad International Airport Rs230 billion or $1.4 billion and Multan airport Rs320 billion or $2 billion.
The value of Islamabad Expressway is estimated at Rs470 billion or $3 billion.
The finance ministry sources said that the Jinnah International Airport, Karachi, has already been exhausted and the government has raised over Rs700 billion worth debt by giving the airport in collateral.
So far, the Ministry of Finance has conducted 32 domestic Sukuk transactions worth Rs1.6 trillion and four international Ijara Sukuk to raise $3.6 billion.
The Pakistan Peoples Party (PPP) government (2008-13) conducted 14 Sukuk transactions and raised Rs501.5 billion debt through Sukuk bonds by pledging various assets. The Pakistan Muslim League-Nawaz (PML-N) government (2013-2018) raised Rs435 billion debt through five Sukuk transactions.
The official record showed that the Pakistan Tehreek-e-Insaf (PTI) government in the past two-and-a-half years already conducted 12 Sukuk transactions and raised Rs762 billion debt. The pace and quantum of borrowing has increased during the tenure of the PTI government due to ever-widening budget deficit, the official documents revealed.
Special Inspection Report
The federal cabinet will also consider a special inspection report by the State Bank of Pakistan (SBP) of the loan write off by four banks.
The SBP is required to submit a special report every year on cases of write off of loans, interest through rescheduling and restructuring of loans in cases where procedures have been departed that caused loss to the bank or wrongful gain.
The Zarai Taraqiati Bank Limited (ZTBL) had written off Rs271.1 million in 28 cases in calendar year 2018. The SBP has objected to two loan write offs of Rs249.5 million and Rs4.8 million by ZTBL in 2018.
Published in The Express Tribune, June 22nd, 2021.
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