Borrowings in the caretaker government's term have been lower as compared to the preceding period. Bulk of the borrowings raised in the last few months was to meet debt repayment obligations including principal and interest expense liabilities as 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 public debt strategy. Time Frame Preceding period 01st February 2023 to 16th August 2023 Caretaker government 17th August 2023 to 31st January 2024 DOMESTIC BORROWINGS • The caretaker government inherited a policy rate of 22 percent, which is highest ever since 1972. The average policy rate during preceding period was almost 19.5%. • Over a short stint, with careful debt management operations, 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. Focus was on reducing borrowings from government securities through the banking sector. The borrowing through government securities fell by 67 percent 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 In?ow Outflow Netflow % Change Preceding period 19,862 (14,031) 5,831 Caretaker government 19,830 (17,934) 1,896 -67% Note: The in?ows of domestic debt are in realized value terms • Caretaker government successfully retired short-term Treasury Bills amounting to Rs 1.6 trillion, contrasting with around Rs 3.3 trillion 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) In?ow Outflow Netflow Preceding period 15,985 (12,678) 3,307 Caretaker government 13,813 (15,417) 1,604 • 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 ?oating rate securities, while fixed rates instruments were borrowed on average at 3 to 4 percent below the policy rate during caretaker government period. • Resultantly, the average time to maturity of domestic debt has increased to around 3.0 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) In?ow 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 percent which reduced to 36.7 percent 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 in?ows were around US$ 0.3 bn, 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 In?ow Outflow Netflow Preceding period 8.4 (5.4) 3.0 Caretaker government 3.9 (3.6) 0.3 • Includes IMF Budgetary & Balance of Payment (BoP) in?ows 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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