Caretaker govt claims credit for lowering borrowings

Expenditure rationalisation and revenue mobilisation seen as the salient features of the caretaker economic policy 

ISLAMABAD: The tenure of the caretaker government has come to a close and even though there were not many options left with Pakistan, a significant shift in debt management strategies was seen during this tenure of the caretaker government. 

Through a statement issued on Thursday, the Ministry of Finance claimed that with a focus on fiscal consolidation, revenue mobilisation, and expenditure rationalisation, the caretaker government navigated through economic challenges with strategic measures.

Domestic Borrowings: The caretaker government inherited a policy rate of 22 percent, the highest since 1972, with the preceding period averaging around 19.5 percent. The government managed to improve the domestic debt profile by extending the maturity of government securities, raising debt below the policy rate margin. Another significant, long-term policy step taken by the caretaker government was tapping into non-bank and retail investors through the capital market by issuing shariah compliant security. 

According to the statement a notable achievement was the reduction of borrowing through government securities via the banking sector by 67 percent compared to the preceding period. The successful retirement of short-term Treasury Bills amounting to Rs 1.6 trillion further reduced the government’s gross financing needs.

Additionally, the caretaker government shifted its domestic borrowing to long-term debt securities, focusing on floating-rate securities while borrowing fixed-rate instruments at rates averaging 3 to 4 percent below the policy rate. This strategic move increased the average time to maturity of domestic debt to around 3.0 years by January 2024, aligning with targets set in the Medium-Term Debt Management Strategy.

External Borrowings: The share of external debt in total public debt decreased from 38.3 percent to 36.7 percent by the end of December 2023, reducing foreign currency risk in line with strategic targets. It is important to note that the government does not have much to do with the dates of maturity of older debt. It is also noteworthy, that a considerable external debt disbursed to Pakistan in the form of an IMF tranche does not translate itself into the books during the government’s tenure due to prevalent public finance practices.

According to the statement by the finance division, no expensive external borrowing was raised from commercial banks and international capital markets during this time. The statement also states that the prudent debt management approach of the caretaker government has not only lowered borrowings but also contributed to fiscal and external current account sustainability. 

While lowering a debt that was scheduled to be paid during a time period may not be an achievement, the claim of sustainability will have to pass the test of time before the caretaker sets up pats itself on the back. As of now, Pakistan is inside an IMF program, which mainly steered the economic policy of the caretaker setup.

A noteworthy policy shift was the emphasis on reducing the sovereign-bank nexus aimed to prevent overburdening of banks with public sector debt while mitigating private sector crowding out. With a focus on fiscal responsibility and strategic debt management, the caretaker government’s efforts mark a step in the right direction and will have to be followed by the upcoming elected government in what is going to be a tough stint in the office.

Ghulam Abbas
Ghulam Abbas
The writer is a member of the staff at the Islamabad Bureau. He can be reached at [email protected]


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