Pakistan’s public debt maturity profile was further shortened in the last fiscal year due to greater reliance on short-term loans, exposing the government to refinancing risks amid the possibility of a further increase in interest rates due to soaring inflation.
The Ministry of Finance published the Annual Debt Review and the Public Debt Bulletin for the 2020-2021 fiscal year on Friday. The report showed a deterioration in public debt indicators linked to debt maturity. But the currency risk indicator improved due to a reduction in the share of external debt and the overall debt-to-GDP ratio also reduced, although the country’s debt carrying capacity weakened.
The report includes details on the progress of the Medium Term Debt Management Strategy (MTDS); changes in total public debt and the portfolio of public guarantees; changes in the composition and structure of domestic and external debt and debt service payments
The finance ministry said the average term to maturity of domestic debt has been further reduced from four years and one month to just three and a half years. The government’s goal was to keep it for at least four years. The three-and-a-half-year ratio is just one month above the three-and-a-half-year minimum threshold set in the Medium-Term Debt Management Strategy.
Likewise, the average maturity of external debt has also deteriorated, from seven years last year to six years and eight months. The official goal was to limit it to at least seven years in the previous fiscal year.
Few of the annual targets set for 2020-2021 for debt risk indicators were slightly missed, mainly due to a higher than expected federal budget deficit; fewer Sukuk bond issues than expected due to unavailability of assets; net retirement in the shares of national savings plans mainly due to the collection of priced bonds, said the Ministry of Finance while giving the reasons for the deterioration of indicators.
The government has remained within the declared benchmarks of risk indicators during the 2020-2021 fiscal year, he added. The report was prepared by the Debt Policy Coordination Office of the Ministry of Finance.
Debt maturity has shortened at a time when the central bank has raised interest rates while also signaling to raise it further in the coming months. The government may have to replace relatively cheaper loans with expensive ones and remain vulnerable to exploitation by creditors.
The report said nearly half of the domestic debt obtained through government securities was held by commercial banks – a ratio that was 40 percent the year before. In absolute terms, the federal government owed Rs 12.8 trillion to commercial banks.
The report showed that almost half of total public debt matures within three years – a ratio of 37% for domestic debt alone.
The share of fixed-rate domestic debt had been reduced from 7% to 40% of domestic debt at a time when interest rates were low and the government should have opted for issuing long-term fixed-rate bonds. fixed.
But the finance ministry said nearly 73% of total borrowing from domestic sources came from medium and long-term domestic debt. He said that in accordance with the government’s commitment; no new loans have been taken out from the State Bank of Pakistan (SBP). The government repaid 569 billion rupees during the year on its debt to SBP. The cumulative debt repayment against SBP debt has amounted to over Rs 1,100 billion in the past two fiscal years.
Pakistan is benefiting from the G-20 Debt Service Suspension Initiative (DSSI) for a period of 20 months (May 2020 – December 2021) which will help defer debt service to the tune of approximately 3, $ 7 billion during this period, the finance ministry said. ministry.
Pakistan’s external debt comes from four main sources, with around 48% multilateral loans, 30% bilateral loans, 13% commercial loans and 9% Eurobonds / Sukuk at the end of June 2021.
Although borrowing from commercial sources has increased relatively in recent years, multilateral and bilateral sources cumulatively still constitute 78% of the external public debt portfolio at the end of June 2021, the finance ministry said.
Commercial loans which amounted to $ 9 billion a year ago have risen to $ 11.3 billion, or 13% of external public debt, which is very risky.
In June 2020, short-term external debt maturing in one year was $ 12.4 billion or 16 percent, which rose to $ 14.3 billion or 17 percent of public external debt, according to the government. report. The $ 14.3 billion also includes $ 9.4 billion that was contracted over the longer term but was completed in the last fiscal year.
The Safe China deposit grew to $ 4 billion, an increase of $ 1 billion in the last fiscal year.
There was a significant drop in disbursements from multilateral lenders, which fell from $ 8.3 billion a year earlier to $ 4.8 billion in the last fiscal year. This has been replaced by riskier short-term debt.
Posted in The Express Tribune, October 2sd, 2021.