Public debt falls by 1pc in October

KARACHI: Pakistan’s government debt fell by Rs456 billion, or 1.0 per cent, month-on-month in October to stand at Rs69.1 trillion, data from the State Bank of Pakistan showed on Wednesday.

Despite this overall decrease, the federal government’s total debt stock increased by 11 per cent year-on-year (YoY) at the end of October. The debt also rose by Rs200 billion in the first four months of the current fiscal year. As of June 30, 2024, the debt stood at Rs68.914 trillion.

The overall debt has fallen, driven by reductions in both domestic and external debt due to the government’s reduced financing needs amid record-high central bank profits and prudent expense management. The repayment of loans and the stable Pakistani rupee contributed to a decrease in the total debt stock in October.

“The country’s repaid external debt amounted to $571 million during the month,” Awais Ashraf, director research at AKD Securities Limited. “Notably, the government has shifted its domestic debt profile towards long-term tenures, a move largely supported by competitive yields in Treasury bills,” Ashraf added.

“Long-term debt increased by Rs745 billion, with the majority of funds raised through Pakistan Investment Bonds (PIBs), followed by GoP Ijara Sukuk. Meanwhile, the government retired over Rs1 trillion in short-term debt,” he said.

The domestic debt declined to Rs47.23 trillion at the end of October, which is a 1.0 per cent decrease from the previous month. However, it rose by 17 per cent YoY. By the end of June, domestic debt was recorded at Rs47.160 trillion.

Similarly, the central government’s external debt fell to Rs21.88 trillion in October, representing a 1.0 percent decline compared to the previous year. The debt also saw a 1.0 percent decrease YoY in October. As of June 2024, foreign debt was clocked in at Rs21.754 trillion.

The State Bank of Pakistan (SBP) said at the analysts’ briefing following last month’s monetary policy meeting that interest expenses are expected to be significantly lower than the target. This decline is attributed to lower interest rates, which will help decrease the government’s domestic debt servicing costs.

The government has set a target of Rs9.8 trillion for interest expenses in FY25. However, due to the decrease in interest rates, buybacks of securities, and a reduction in external debt, the interest expense is projected to be less than Rs8.5 trillion. This represents a savings of Rs1.3 trillion, or 1.0 percent of GDP, for the government. To expand its investor base and facilitate participation from a diverse range of investors, including retail investors, the government has implemented several measures. These initiatives aim to reduce the cost of borrowing by increasing the number of subscribers. According to a report from Topline Securities, the government raised Rs2 trillion through Sukuk auctions at the Pakistan Stock Exchange (PSX) in 2024, with yields across various tenors remaining lower than those of conventional papers.