caretaker Finance Minister Dr. Shamshad Akhtar presented a comprehensive comparison between her administration’s debt management and that of her predecessor, Ishaq Dar. Notably, she highlighted achievements in both domestic and external debt management, positioning her administration favorably as she nears the end of her tenure.
Drawing a comparison between the Shehbaz Sharif-led government and the caretaker administration, the Ministry of Finance asserted that borrowing had been curtailed despite inheriting challenging economic conditions.
The statement from the Ministry of Finance emphasized that the caretaker government prioritized fiscal consolidation measures, focusing on revenue mobilization and expenditure rationalization. It underscored the significance of managing debt obligations, particularly in meeting repayment requirements for both principal and interest expenses. Despite inheriting a record-high policy rate of 22%, the caretaker government aimed at strategic debt management to stabilize the economy amidst evolving challenges.
Enhanced Domestic Debt Profile
The Ministry of Finance detailed measures undertaken to improve the domestic debt profile, including extending the maturity of government securities and tapping non-bank and retail investors through the capital market.
Notably, the caretaker government reported a significant reduction in borrowing through government securities, citing a 67% decrease compared to the preceding period. By retiring short-term Treasury Bills and shifting towards long-term debt securities, the government aimed at reducing gross financing needs while extending the average time to maturity of domestic debt.
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Furthermore, the statement highlighted a shift towards long-term debt instruments, with major borrowing from floating-rate securities. This strategic approach aimed at achieving the targets outlined in the Medium-Term Debt Management Strategy (MTDS) FY23-FY26, reflecting a step towards fiscal sustainability. The ministry’s data indicated a substantial decrease in net inflows of domestic debt during the caretaker government’s tenure, signaling prudent debt management practices amid economic transition.
Optimized External Borrowings
The Ministry of Finance also shed light on external debt management, emphasizing a reduction in the share of external debt in total public debt, thus minimizing foreign currency risks.
The caretaker government reported lower net external debt inflows compared to the preceding period, highlighting a cautious approach towards external borrowing. Notably, the absence of expensive external borrowing from commercial banks and international capital markets during the caretaker government’s term underscored a commitment to fiscal prudence.
Beyond managing debt obligations, the caretaker government emphasized the need to reduce the sovereign-bank nexus, thereby preventing undue burden on the banking sector and minimizing private sector crowding out. As the transition approaches, the focus on strategic debt management remains paramount in navigating Pakistan’s economic landscape.