ISLAMABAD: In a rare comparison before leaving portfolio on completion of about six months, caretaker Finance Minister Dr Shamshad Akhtar on Thursday claimed better debt management — domestic and external — from all aspects than her predecessor Ishaq Dar in the PDM-led coalition government, apparently pitching for her continuation.

“Borrowings in the caretaker government’s term have been lower as compared to the preceding period”, although they inherited tougher conditions, said the Ministry of Finance in a statement.

Giving a comparison of six and half months (Feb 1 to Aug 16, 2023) of the Shehbaz Sharif government with five and half months (Aug 17, 2023 to Jan 31, 2024), the statement issued by the caretaker minister’s office claimed to have outperformed the previous management.

It said the bulk of the borrowings raised in the last few months of caretakers was to meet debt repayment obligations including principal and interest expense liabilities as the caretaker government focused primarily on fiscal consolidation measures including revenue mobilisation and expenditure rationalisation.

Ministry says Shamshad added $300m to foreign loans vs $3bn by Dar

“The caretaker government inherited a policy rate of 22pc, which is the highest ever since 1972. The average policy rate during the preceding period was almost 19.5pc,” the MoF said.

The caretaker finance minister did not blame the principal accounting officer (PAO) Imdadullah Bosal for ‘inferior performance’ under Ishaq Dar, nor gave him credit for ‘better management’ under Shamshad Akhtar.

As Secretary Finance, Mr Bosal served under Mr Dar for four months and with Dr Akhtar for six months. As such, the comparison is left entirely between Senator Dar and Dr Akhtar.

Improved profiling

“Over a short stint, with careful debt management operations, the caretaker government has managed to improve domestic debt profile,” said the statement, adding that the three-pronged approach — extending the maturity of government securities, raising debt on margin below the policy rate and tapping non-bank and retail investors through the capital market.

It said the focus was on reducing borrowings from government securities through the banking sector. As a result, the borrowing through government securities “fell by 67pc in the caretaker government’s term as compared to the preceding period”.

It said that the Dar-led Ministry of Finance contracted Rs19.862 trillion worth of domestic debt through government securities and paid out Rs14.031tr, with a net addition of Rs5.831tr. In comparison, Dr Shamshad-led MoF contracted slightly lower domestic debt of Rs19.83tr in similar coupons but paid out an amount of Rs17.934tr, with a net reduction of Rs1.896tr (67pc).

Likewise, the “caretaker government successfully retired short-term Treasury Bills (T-Bills) amounting to Rs1.6tr, contrasting with around Rs3.3tr raised in the preceding period” under Dar’s oversight. This helped in reducing the gross financing needs of the government.

Domestic borrowings

Moreover, the caretaker government claimed that it shifted its domestic borrowing to long-term debt securities for the financing of fiscal deficit. Out of medium to long-term instruments, major borrowing remained from floating rate securities, while fixed rates instruments were borrowed on average at 3 to 4pc below the central bank’s policy rate during the caretaker government period, it said.

Resultantly, the average time to maturity of domestic debt has increased to around 3 years by the end of January 2024 as compared to 2.8 years at the end of June 2023. This is in line with the targets mentioned in the Medium-Term Debt Management Strategy (MTDS) FY23-FY26 and a step in the right direction to meet the end-June 2024 target of 3.1 years.

It said the Dar-led MoF borrowed Rs3.877tr through Pakistan Investment Bonds (PIBs) and Ijara Sukuk in six months preceding Aug 16 against the outflow of Rs1.353tr, showing net inflows of Rs2.524tr. In comparison, Shamshad-led MoF borrowed Rs6.017tr in sukuk and PIB against an outflow of Rs2.517tr, showing a net inflow of Rs3.5tr.

External debts

On the external side, the share of external debt in total public debt was 38.3pc as of end-June 2023 which was reduced to 36.7pc at end December 2023. This helped to reduce the foreign currency risk of the total public debt in line with the targets defined in the MTDS FY23-FY26.

“During caretaker government, the net external debt inflows were around $0.3bn, which is lower as compared to (more than $3bn) preceding period. Furthermore, no expensive external borrowing was raised from commercial banks and international capital markets during the caretaker government,” the statement said.

Giving details, the statement said the external public debt inflows stood at $8.4bn in the concluding six months of the previous government against $5.4bn outflows, leaving a net addition of $3bn. However, inflows during the caretaker government stood at $3.9bn compared to $3.6bn outflow, a net increase of $300m.

Based on the comparison, the ministry advocated for prudent debt management including breaking the nexus with the banking sector for excessive borrowing.

“Besides fiscal and external current account sustainability and privatising state-owned companies, it is critical to pursue prudent debt management backed by reducing sovereign-bank nexus to avoid overburdening banks with public sector debt, while reducing private sector crowding out,” the caretaker finance minister’s office concluded.

Published in Dawn, February 23rd, 2024

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