The country plans to issue 10- to 15-year bonds and secure concessional loans to meet its external financing needs, as part of a new Medium-Term Debt Management Strategy for fiscal years 2023 to 2026 that aims to reduce risk and diversify its portfolio.
By Staff Reporter
ISLAMABAD: Pakistan plans to meet most of its external financing needs in the medium term through 10- to 15-year international bonds and concessional multilateral loans, as well as diversify its domestic debt instruments, the finance ministry said.
The measures are part of the new Medium-Term Debt Management Strategy for fiscal years 2023 to 2026, which also has the backing of the International Monetary Fund (IMF).
The strategy seeks to increase the average time to maturity of the external debt portfolio over the medium term by availing maximum concessional financing from bilateral and multilateral development partners and borrowing more in longer tenors in the international capital market.
“Availing maximum concessional external financing from bilateral and multilateral development partners” is one of the measures under the strategy to increase the average time to maturity of external debt portfolio over the medium term, it said, adding that other measures would include “borrowing more in 10 years’ and 15 years’ tenors in the international capital market while keeping the consideration for cost and risk trade-offs”.
It also aims to reprofile existing commercial loans from the short term to the medium and long term and avoid contracting fresh commercial loans in less than three years’ tenors.
On the domestic front, the government plans to introduce inflation-linked bonds, list government securities on the stock exchange, and issue short-term Islamic and conventional floating rate products to broaden the investor base and offer diversified investment avenues.
The government may also consider bond exchanges and buyback operations to manage rollover and refinancing risk, and make National Savings Scheme certificates available for purchase in digital form through the Central Depository Company.
“The ultimate aim is to utilise the stock exchanges for primary market/auction of the government debt securities to enable wider outreach and improve participation of retail segment.”
The ministry’s paper projected a declining trajectory of the public debt-to-GDP ratio, which had increased over the past few years.
The strategy seeks to increase the average time to maturity of the external debt portfolio over the medium term by availing maximum concessional financing from development partners and borrowing more in longer tenors in the international capital market.
It also aims to reprofile existing commercial loans from the short term to the medium and long term and avoid contracting fresh commercial loans in less than three years’ tenors.
The strategy paper also said that the government may consider undertaking bond exchanges and buyback operations to manage rollover and refinancing risk by consolidating a large number of outstanding securities into fewer and more liquid instruments.
The average time to maturity of external debt has decreased over the past few years from 10 years in 2012-13 to 6.2 years by the end of June 2022, mainly because of the running-off of the existing portfolio and the government’s reliance on commercial avenues.
“Commercial borrowing is contracted at market terms, i.e. at a relatively higher cost and lower tenor.”
The ministry expects faster project implementation and structural reforms to boost disbursements under project aid and policy-based funding, respectively.
The risks, however, remained on the higher side due to the economic and fiscal impact of floods, post-Covid, Russia-Ukraine conflict, and global inflationary pressure.
The strategy is based on the premise that the government would reduce the budget deficit from 7.9% of GDP in 2021-22 to 3.1% by 2025-26, with average annual inflation falling to around 6.5% by 2025-26.
“With increased investor confidence, stable inflation, fairly valued exchange rate, improved current account balance, and better fiscal and monetary management, economic growth is projected to reach 5.5 percent per annum by FY26.”
However, lower tax revenues, climate change events, and any shortfall in the Federal Board of Revenue’s collection may adversely affect the government’s projected fiscal position.
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