21 January 2004	Wednesday	28 Ziqa'ad 1424

KARACHI, Jan 20: Pakistan has managed to contain the growth in its domestic debt under one per cent in the first five months of this fiscal year. Data released by the State Bank shows that total domestic debt stood at Rs1,871 billion at end-November 2003 , up by only Rs17.3 billion or 0.9 per cent from Rs1853.7 billion at end-June 2003.

Senior bankers say that slower growth in domestic debt would help the government reduce its cost of debt servicing, thus creating fiscal space for development spending and bringing about financial discipline.

What has helped the government contain the growth of domestic debt at less than one per cent is net retirement of floating debt and unfunded debt that are relatively expensive. In five months to November 2003, only permanent debt has shown a net growth - thanks to increased borrowing through Pakistan Investment Bonds (PIBs).

The government raised Rs46.4 billion permanent debt in five months to November 2003 - Rs36.3 billion through PIBs and Rs10.1 billion through prize bonds. But it retired debt raised earlier through other instruments of permanent debt. That brought down the permanent debt raised in July-November 2003 to about Rs36 billion. Accordingly, total permanent debt that stood at Rs428 billion at end-June 2003 reached at Rs464 billion at end-November.

The government also raised Rs31.7 billion through the market treasury bills, but it retired Rs44.5 billion raised earlier through special T-bills created by the State Bank. So on balance the floating debt (of which these instruments form part) recorded a net fall of Rs12.8 billion in five months to November 2003. Total floating debt that stood at Rs516.3 billion at end-June 2003 declined to Rs503.5 billion at end-November.

Central bankers say the government borrowing from the central bank is more inflationary in nature than other borrowings. So the reduction in the debt raised through special T-bills created by SBP was good as it played a part in keeping consumer inflation at 2.62 per cent in July-November 2003.

The data also shows a net retirement of Rs5.8 billion worth of unfunded debt in five months to November 2003. The stock of unfunded debt fell from Rs909.5 billion at end-June 2003 to Rs903.7 billion at end-November.

The reduction in unfunded debt came about primarily through withdrawals from national saving schemes due to their falling rates of return. The NSS that saw net withdrawals in five months to November 2003 included (i) Defence Saving Certificates (ii) National Deposit Certificates (iii) Khas Deposit Certificates (iv) Special Saving Certificates - registered as well as bearer (v) Regular Income Certificates (vi) Khas Deposit Accounts (vii) Savings Accounts; and (viii) Special Savings Accounts. The only exception was Mahana Amdani Accounts that saw a nominal investment of Rs50 million in five months to November 2003.

The largest withdrawal of Rs14.1 billion was seen in case of five-year regular RICs followed by that of Rs2.15 billion in savings accounts; Rs1.7 billion in SSCs and Rs600 million in DSCs. Other instruments of NSS listed above saw marginal net withdrawals. There was a net negative inflow of Rs24 million also in case of general provident fund of the public sector employees.

But the government managed to raise Rs3.4 billion through Pensioners' Benefit Accounts and Rs7 billion through Bahbood Saving Certificates. It also raised Rs2.3 billion through postal life insurance scheme. The money raised through these three schemes offset to a large extent the net outflows from NSS. That was why the stock of unfunded debt saw only Rs5.8 billion fall in July-November 2003.