The Ministry of Finance has disclosed the comprehensive breakdown of domestic loans acquired by the interim government spanning from August 17, 2023, to January 31, 2024, shedding light on the financial landscape during this transitional phase.

Islamabad: Details of local loans during interim govt tenure has been revealed by Finance ministry . During the caretaker regime, the government procured domestic loans amounting to a staggering sum of Rs 19,830 billion, whereas from February 1 to August 16, 2023, loans totalling Rs 19,862 billion were borrowed, marking a notable financial activity.

However, the interim government demonstrated fiscal responsibility by repaying a substantial portion of the local debt, returning Rs 17,934 billion during its tenure compared to Rs 14,031 billion in the prior period.

Remarkably, the net flow of local debt during the caretaker term stood at Rs 1896 billion, showcasing a significant decline from the previous period’s Rs 5,831 billion, denoting a 67% reduction in loans compared to the corresponding timeframe.

Moreover, the Ministry highlighted that the caretaker administration inherited a policy rate of 22%, whereas the average policy rate in the preceding term was 19.5%, indicating the financial landscape’s dynamics.

Read More: Ministry of Finance Forecasts Decrease in Inflation Rate for February 2024

PRESS RELEASE

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.

DOMESTIC BORROWINGS

• The caretaker government inherited a policy rate of 22 percent, which is highest ever since 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:

• Caretaker government successfully retired short-term Treasury Bills amounting to Rs 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:

• Caretaker government shifted its domestic borrowing to long-term debt securities for the financing of fiscal 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 policy rate during caretaker government period.
• Resultantly, the average time to maturity of domestic debt has increased to around 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:

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-
• Table 4 indicates that during caretaker government, the net external debt inflows were around US$ 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.

• 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

In a bid to streamline the local debt profile, the caretaker government executed measures to enhance financial stability. Notably, the volume of treasury bills escalated to Rs 1.6 trillion during the caretaker period, a noteworthy decrease from the previous term’s Rs 3.3 trillion, consequently alleviating the government’s fiscal burden.

Furthermore, the statement outlined the external debt situation, disclosing that the caretaker government secured external loans amounting to $3.9 billion, significantly lower than the $8.4 billion borrowed in the prior term.

Equally significant was the repayment of foreign debt, with the interim government successfully clearing $3.6 billion, compared to $5.4 billion in the previous period, showcasing prudent financial management during the transitional phase.