Finance Ministry Upholds Borrowing Record During Caretaker Administration

The Ministry of Finance announced on Thursday that borrowing during the caretaker government’s term has been lower compared to the preceding period. In a statement, the ministry highlighted that the majority of borrowings over the past few months were primarily allocated to fulfilling debt repayment obligations, including both principal and interest expenses. The caretaker government prioritized fiscal consolidation measures, focusing on revenue generation and expenditure optimization.

A comparison was drawn between borrowings in the preceding period (February 1, 2023, to August 16, 2023) and the caretaker government’s tenure (August 17, 2023, to January 31, 2024).

Regarding domestic borrowings, the statement noted that the caretaker government inherited a historically high policy rate of 22 percent, the highest since 1972, with an average policy rate of nearly 19.5 percent during the preceding period. Through prudent debt management operations, the caretaker government improved the domestic debt profile by extending the maturity of government securities, raising debt at rates below the policy rate, and attracting non-bank and retail investors through the capital market. There was a significant decrease of 67 percent in borrowing through government securities during the caretaker government’s term compared to the preceding period. Notably, the caretaker government successfully retired short-term Treasury Bills amounting to Rs. 1.6 trillion, contrasting with the approximately Rs. 3.3 trillion raised in the preceding period, thereby reducing the government’s gross financing needs.

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Additionally, the caretaker government shifted its domestic borrowing towards long-term debt securities to finance the fiscal deficit. The majority of borrowing from medium to long-term instruments was from floating rate securities, with fixed-rate instruments borrowed on average at 3 to 4 percent below the policy rate during the caretaker government’s period. Consequently, the average time to maturity of domestic debt increased to around 3 years by the end of January 2024 compared to 2.8 years at the end of June 2023, aligning with the targets outlined in the Medium-Term Debt Management Strategy (MTDS) FY23-FY26.

Regarding external borrowings, the share of external debt in total public debt decreased from 38.3 percent at the end of June 2023 to 36.7 percent at the end of December 2023, reducing the foreign currency risk of the total public debt in accordance with the MTDS FY23-FY26 targets. Moreover, during the caretaker government’s tenure, net external debt inflows were approximately $0.3 billion, lower than the preceding period. Additionally, no costly external borrowing was obtained from commercial banks and international capital markets during the caretaker government’s term.

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