indian_foxhound
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As the budget deficit soared to a record high at Rs1.77 trillion in the last fiscal
year, the government raised Rs182 billion
through an Islamic bond, called Sukuk, against
the security of Jinnah International Airport
Karachi another asset mortgaged after
Pakistan Motorways (M2). However, analysts question the use of Islamic
bonds for budget financing and linking the return
with treasury bills, saying it is forbidden and
against Shariah laws. The government borrowed the money during
fiscal year 2011-12 ended June 30 last year,
according to documents of the finance ministry. Sukuk is a bond structured on Islamic principles
as an alternative to traditional bonds. It gives
creditors partial ownership in the debt asset until
the borrower pays back all the obligations. Sukuk operations were launched through the
Pakistan Domestic Sukuk Company Limited
incorporated in 2007. Earlier, the government had offered the
motorway land with all constructions and
improvements on M-2 (Islamabad-Lahore) as a
guarantee against Sukuk to generate funds for
budget financing. In the last fiscal year, it
borrowed a total Rs412 billion through Sukuk, enabling it to meet 23.2% of financing needs. Compared to the original target of Rs826 billion
or 4% of gross domestic product, the budget
deficit in 2011-12 stood at Rs1.77 trillion or 8.6%
of GDP the highest in the countrys history. The
governments failure to implement much-needed
fiscal and energy reforms led to this situation, according to the analysts. According to the documents, the (borrowed)
amount was utilised to finance the budget
deficit and a major portion of the amount was
raised on a par with the treasury bill rate for
three years. There are differences of opinion over the use of
money raised through Sukuk and linking the
return with the treasury bills. Linking Sukuk with the fixed rate of return on
any loan and security paper becomes Riba, which
is forbidden under Islamic laws, said Ahmad
Mukhtar Naqshbandi, an expert in Islamic
economics. In the Sukuk model, he said, the money
borrowed against the asset has to be used for
the purpose described and profit on investment
has also to be paid out of the return on the
mortgaged asset. Finance ministry spokesman Rana Assad Amin
told The Express Tribune there was no restriction
on the use of money raised through Sukuk and
the government was using the Karachi airports
income to pay profit on the investment in Sukuk. According to another official of the ministry, the
Shariah Board, which has approved the
mechanism for floating Sukuk, has not objected
to the nature of using the borrowed money. According to the documents, the share of
permanent debt in total domestic debt rose from
18.7% in 2010-11 to 22.2% at end-June 2012,
mainly contributed by the Ijara Sukuk bond and
Pakistan Investment Bonds. The finance ministry said the government
mopped up Rs159 billion through successful
auctions of Ijara Sukuk and Rs356 billion through
Pakistan Investment Bonds during 2011-12. However, according to the Debt Policy Statement
of 2012-13, in the last fiscal year, the government
added roughly Rs2 trillion to the overall debt
burden. The economic slowdown also compelled the
government to seek rollover of a significant
chunk of foreign loans. Last year, roughly $1.2
billion in matured loans were rolled over.
Furthermore, it got $500 million from friendly
countries, which have been parked in the State Bank to shore up foreign currency reserves. Last year, the government also obtained $256
million from International Islamic Trade
Corporation under Murabaha Finance. This
amount is expected to be utilised in the current
fiscal year for import of crude oil and petroleum
projects of Pak Arab Refinery Company (Parco). Published in The Express Tribune, February 12th, 2013.
http://www.tribune.com.pk/story/505930/sukuk-issue-karachi-airport-offered-as-security/
year, the government raised Rs182 billion
through an Islamic bond, called Sukuk, against
the security of Jinnah International Airport
Karachi another asset mortgaged after
Pakistan Motorways (M2). However, analysts question the use of Islamic
bonds for budget financing and linking the return
with treasury bills, saying it is forbidden and
against Shariah laws. The government borrowed the money during
fiscal year 2011-12 ended June 30 last year,
according to documents of the finance ministry. Sukuk is a bond structured on Islamic principles
as an alternative to traditional bonds. It gives
creditors partial ownership in the debt asset until
the borrower pays back all the obligations. Sukuk operations were launched through the
Pakistan Domestic Sukuk Company Limited
incorporated in 2007. Earlier, the government had offered the
motorway land with all constructions and
improvements on M-2 (Islamabad-Lahore) as a
guarantee against Sukuk to generate funds for
budget financing. In the last fiscal year, it
borrowed a total Rs412 billion through Sukuk, enabling it to meet 23.2% of financing needs. Compared to the original target of Rs826 billion
or 4% of gross domestic product, the budget
deficit in 2011-12 stood at Rs1.77 trillion or 8.6%
of GDP the highest in the countrys history. The
governments failure to implement much-needed
fiscal and energy reforms led to this situation, according to the analysts. According to the documents, the (borrowed)
amount was utilised to finance the budget
deficit and a major portion of the amount was
raised on a par with the treasury bill rate for
three years. There are differences of opinion over the use of
money raised through Sukuk and linking the
return with the treasury bills. Linking Sukuk with the fixed rate of return on
any loan and security paper becomes Riba, which
is forbidden under Islamic laws, said Ahmad
Mukhtar Naqshbandi, an expert in Islamic
economics. In the Sukuk model, he said, the money
borrowed against the asset has to be used for
the purpose described and profit on investment
has also to be paid out of the return on the
mortgaged asset. Finance ministry spokesman Rana Assad Amin
told The Express Tribune there was no restriction
on the use of money raised through Sukuk and
the government was using the Karachi airports
income to pay profit on the investment in Sukuk. According to another official of the ministry, the
Shariah Board, which has approved the
mechanism for floating Sukuk, has not objected
to the nature of using the borrowed money. According to the documents, the share of
permanent debt in total domestic debt rose from
18.7% in 2010-11 to 22.2% at end-June 2012,
mainly contributed by the Ijara Sukuk bond and
Pakistan Investment Bonds. The finance ministry said the government
mopped up Rs159 billion through successful
auctions of Ijara Sukuk and Rs356 billion through
Pakistan Investment Bonds during 2011-12. However, according to the Debt Policy Statement
of 2012-13, in the last fiscal year, the government
added roughly Rs2 trillion to the overall debt
burden. The economic slowdown also compelled the
government to seek rollover of a significant
chunk of foreign loans. Last year, roughly $1.2
billion in matured loans were rolled over.
Furthermore, it got $500 million from friendly
countries, which have been parked in the State Bank to shore up foreign currency reserves. Last year, the government also obtained $256
million from International Islamic Trade
Corporation under Murabaha Finance. This
amount is expected to be utilised in the current
fiscal year for import of crude oil and petroleum
projects of Pak Arab Refinery Company (Parco). Published in The Express Tribune, February 12th, 2013.
http://www.tribune.com.pk/story/505930/sukuk-issue-karachi-airport-offered-as-security/
