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Caretaker govt’s debt repayment, fiscal measures

Caretaker govt’s debt repayment
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February 22, 2024 (MLN): During the caretaker government's tenure, borrowing remained lower than in the preceding period, the majority of which was directed towards meeting debt repayment obligations, said a press release issued by the Ministry of Finance.

Moreover, the debt obligations included both principal and interest expense liabilities.

This reflects the caretaker government focused primarily on fiscal consolidation measures including revenue mobilization and expenditure rationalization.

Below is a comparison of the caretaker government versus preceding period's public debt strategy.

Time Frame
Preceding period February 01, 2023 to August 16, 2023
Caretaker government August 17, 2023 to January 31, 2024

Domestic Borrowings

The caretaker government inherited a policy rate of 22%, which is the highest ever since 1972. The average policy rate during the preceding period was almost 19.5%.

Over a short stint, with careful debt management operations, the caretaker government has managed to improve domestic debt profile by: (i) extending maturity of government securities; (ii) raising debt on margin below the policy rate; and (iii) tapping non-bank and retail investors through capital market.

The focus was on reducing borrowings from government securities through the banking sector.

The borrowing through government securities fell by 67% in the caretaker government’s term as compared to the preceding period as elucidated in table 1 below:

Table 1: Domestic Debt Flows (GoP Securities) Rs in Billion
Period Inflow Outflow Netflow % Change
Preceding period 19,862 -14,031 5,831  
Caretaker government 19,830 -17,934 1,896 -67%

Note: The inflows of domestic debt are in realized value terms

The caretaker government successfully retired short-term Treasury Bills amounting to Rs1.6 trillion, contrasting with around Rs3.3tr raised in the preceding period.

This helped in reducing the gross financing needs of the government. Following table 2 describes the net borrowing from Treasury Bills:

Table 2: Treasury Bills (Rs in Billion)
  Inflow Outflow Netflow
Preceding period 15,985 -12,678 3,307
Caretaker government 13,813 -15,417 1,604

The caretaker government shifted its domestic borrowing to long-term debt securities for the financing of fiscal deficit.

Out of medium to long-term instruments, major borrowing remained from floating rate securities, while fixed rates instruments were borrowed on average at 3 to 4% below the policy rate during caretaker government period.

Resultantly, the average time to maturity of domestic debt has increased to around 3 years by the end Jan 2024 as compared to 2.8 years at the end of June 2023.

This is in line with the targets mentioned in the Medium-Term Debt Management Strategy (MTDS) FY23-FY26 and a step in the right direction to meet the end June 2024 target of 3.1 years.

Table 3 below highlights the net borrowing from Pakistan Investment Bonds (PIBs) and Government Ijara Sukuk:

Table 3: PIBs and Sukuk (Rs in Billion)
  Inflow Outflow Netflow
Preceding period 3,877 -1,353 2,524
Caretaker government 6,017 -2,517 3,500

External Borrowings

At end June 2023, share of external debt in total public debt was 38.3% which reduced to 36.7% at end December 2023. This helped to reduce the foreign currency risk of the total public debt in-line with the targets defined in the MTDS FY23- FY26.

Table 4 indicates that during caretaker government, the net external debt inflows were around $0.3bn, which is lower as compared to preceding period.

Furthermore, no expensive external borrowing was raised from commercial banks and international capital markets during caretaker government.

Table 4: External Public Debt Flows (USD billion)
Period Inflow Outflow Netflow
Preceding period 8.4 -5.4 3
Caretaker government 3.9 -3.6 0.3
  • Includes IMF Budgetary & Balance of Payment (BoP) inflows and outlows
  • Excluding grants and bilateral rollover
  • Outlows represent principal only
  • Does not include UAE BoP deposit in July 2023.

Besides fiscal & external current account sustainability and privatizing state-owned companies, it is critical to pursue prudent debt management backed by reducing sovereign-bank nexus to avoid overburdening banks with public sector debt, while reducing private sector crowding out.

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Posted on: 2024-02-22T19:26:15+05:00