“Borrowings in the caretaker government’s term have been lower as compared to the preceding period”, although they inherited tougher conditions, said the Ministry of Finance in a statement.
It said the bulk of the borrowings raised in the last few months of caretakers was to meet debt repayment obligations including principal and interest expense liabilities as the caretaker government focused primarily on fiscal consolidation measures including revenue mobilization and expenditure rationalization.
Shamshad added US$300 million to foreign loans as against US$3 billion by Dar.
“The caretaker government inherited a policy rate of 22pc, which was the highest ever since 1972. The average policy rate during the preceding period was almost 19.5%,” the MoF said.
The caretaker finance minister did not blame the principal accounting officer (PAO) Imdadullah Bosal for ‘inferior performance’ under Ishaq Dar, nor gave him credit for ‘better management’ under Shamshad Akhtar.
As Secretary Finance, Bosal served under Dar for four months and with Dr Akhtar for six months. As such, the comparison is left entirely between Senator Dar and Dr Akhtar.
Improved profiling
“Over a short stint, with careful debt management operations, the caretaker government has managed to improve domestic debt profile,” said the statement, adding that the three-pronged approach — extending the maturity of government securities, raising debt on margin below the policy rate and tapping non-bank and retail investors through the capital market.
It said the focus was on reducing borrowings from government securities through the banking sector. As a result, the borrowing through government securities fell by 67% in the caretaker government’s term as compared to the preceding period”.
It said that the Dar-led Ministry of Finance contracted PKR19.862 trillion worth of domestic debt through government securities and paid out PKR14.031 trillio, with a net addition of PKR5.831 trillio. As against this, Dr Shamshad-led MoF contracted slightly lower domestic debt of PKR19.83 trillio in similar coupons but paid out an amount of PKR17.934 trillio, with a net reduction of PKR1.896 trillion.
Likewise, the “caretaker government successfully retired short-term Treasury Bills (T-Bills) amounting to PKR1.6 trillio, contrasting with around PKR3.3 trillio raised in the preceding period” under Dar’s oversight. This helped in reducing the gross financing needs of the government.
Domestic borrowings
Moreover, the caretaker government claimed that it 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 percent below the central bank’s policy rate during the caretaker government period, it said.
Resultantly, the average time to maturity of domestic debt has increased to around 3 years by the end of January 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.
It said the Dar-led MoF borrowed PKR3.877 trillion through Pakistan Investment Bonds (PIBs) and Ijara Sukuk in six months preceding August 16, against the outflow of PKR1.353 trillion, showing net inflows of PKR2.524 trillion. In comparison, Shamshad-led MoF borrowed PKR6.017 trillion in Sukuk and PIB against an outflow of PKR2.517 trillion, showing a net inflow of PKR3.5 trillion.
External debts
On the external side, the share of external debt in total public debt was 38.3% as of end-June 2023 which was 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.
“During caretaker government, the net external debt inflows were around US$0.3 billion, which was lower as compared to (more than US$3 billion) preceding period. Furthermore, no expensive external borrowing was raised from commercial banks and international capital markets during the caretaker government,” the statement said.
Giving details, the statement said the external public debt inflows were at US$8.4 billion in the concluding six months of the previous government against US$5.4 billion outflows, leaving a net addition of US$3 billion. However, inflows during the caretaker government stood at US$3.9 billion as compared to US$3.6 billion outflow, a net increase of US$300 million.
Based on the comparison, the ministry advocated for prudent debt management including breaking the nexus with the banking sector for excessive borrowing.
“Besides fiscal and 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,” the caretaker finance minister’s office concluded.
