LAHORE - The gross public debt of the country has reached Rs20.9 trillion, with an addition of Rs1.2 trillion in third quarter (July-March) of FY17. More than 90 percent of the rise in public debt came from domestic borrowing, while increase in external debt remained moderate on account of revaluation gains and marginally higher debt repayments during the period.
This was stated in third quarterly report of ‘State of Pakistan Economy’ released by the central bank.
The report said that with higher fiscal deficit and net external financing slightly lower than last year, the burden of deficit financing fell on domestic sources during Jul-Mar FY17. Yet, the pace of domestic debt accumulation decelerated during the period. It grew by 8.2 percent during Jul-Mar FY17 compared to 9.9 percent increase recorded in the last year. Almost entire increase in domestic debt during the period was contributed by short-term debt, as the government retired long-term debt. Quarterly break-up shows that there was a shift in borrowing away from SBP during the second and third quarters of FY17. In absolute terms, the government retired Rs 177.3 billion to SBP during second and third quarters FY17, after borrowing heavily from SBP in the first quarter. This retirement was made possible through: (i) drawdown in government deposits held with the SBP, and; (ii) increased borrowing from commercial banks. Banks’ interest in government securities, as evident from the bidding pattern in recent auctions, was also revived in Q3-FY17. Yet, the offer-to target ratio was much higher in case of T-bill than in PIB auctions. Against a target of Rs 2.5 trillion, commercial banks offered Rs 4.3 trillion in T-bill auctions held during the third quarter. Moreover, most offers were in 3-months and 6- months T-bills (Table 4.10). The government accepted significantly higher amount in T-bill auctions compared to targets to facilitate retirement of maturing PIBs in the quarter. PIB auctions depict relatively different picture in Q3-FY17. As a whole, the government did not meet pre-auction targets as banks were bidding for higher rates. With these developments, the composition of Pakistan’s domestic debt saw a shift: significant substitution of long-term debt with short-term debt. Thus with an increase of Rs 1.6 trillion in Jul-Mar FY17, the share of floating debt rose to 44.8 percent by end March FY17 from 36.7 percent as of end June 2016.
While short-term borrowings help curtail the servicing cost, these worsen the maturity profile and increase the government exposure to rollover and re-pricing risks. For instance, the debt re-fixing in one year increased to 53.6 percent in December 2016 from 47.7 in June 2015.
Net inflows in NSS during Jul-Mar FY17 were still lower than the level observed during the same period last year. At the same time, the gross inflows in these schemes proved to be more resilient to the profit rate changes during FY17, showing significant improvement in the gross inflows during the third quarter. It seems that investors re-priced their investments to get benefit of higher rates, as net inflows did not increase much.
Pakistan’s public external debt & liabilities stock increased by $595.6 million during Jul-Mar FY17, reaching $ 62 billion as of end-March 2017. Despite substantial disbursements, lower accumulation in external debt reflects $1.5 billion revaluation gain during the period. At the same time, repayment of external debt also increased marginally during the period compared with the same period last year. Gross external loan disbursements stood at $4.9 billion during Jul-Mar FY17, largely in line with the full year target of $7.6 billion announced at the beginning of FY17. In addition to $1.0 billion Sukuk bond proceeds, Pakistan also received substantial inflows from external creditors, especially from ADB, foreign commercial banks, and China. NSS rates have been revised on three occasions during Jul-Mar FY17 i.e., August 1, 2016; October, 1 2016, and; February 1, 2017. It is important to note that the number of national saving schemes is exempted from any direct penalty on early encashment that encouraged investors to re-invest their original certificates.
Encouragingly, inflows from the multilateral donors continued, despite conclusion of the IMF program in the beginning of FY17.
Specifically, gross disbursement from IFIs stood at $ 1.2 billion in Jul-Mar FY17. Within the multilateral flows, disbursements from ADB increased, while inflow from the World Bank declined. Another important development is the substantial financing availed from the foreign commercial banks. Generally, inflows from multilateral donors (like ADB, World Bank etc) are contingent with the structural reforms under IMF program and usually dry out with the completion of program. However, as inflows remain intact, this shows that government is continuing its reforms program.