To resolve a major anomaly, the government and banks on Friday swapped half of the Rs 391 billion-circular debt term finance certificates (TFCs) into five-year Pakistan Investment Bond (PIB) and the other half into one-year treasury bills (T bills). Briefing reporters, Finance Secretary Waqar Masud Khan said the swap was performed by banks and the State Bank of Pakistan on Friday evening in Karachi. He said TFCs were issued at an exorbitant rate of 200 bases points above the KIBOR. The offered rate for PIB is based on the average of last two issued bonds, while the offered rate for T bill is the same as given to banks two days ago by the central bank. The banks have opted for swap as new instruments were liquid compared to the TFCs.
The resolution of circular debt will resolve a major anomaly on which the International Monetary Fund (IMF) had major concerns, as it was not reflected in the federal budget of the last three fiscal years fro being parked outside the budget. “The swap will increase the fiscal deficit by 1.8 percent of GDP and will be shown in this year’s budget,” he said, although he denied that it was resolved to get a better report from the fund in the upcoming week-long negotiations in Dubai. The swap would clear the liabilities in bank books and would allow them to continue financing for power sector projects. As with huge advances given to the power sector, the banks have refused further financing for power projects that was causing difficulties for the generation companies in fuel purchases.
