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Dar’s Written Response to National Assembly

April 18, 2017

Asad Rizvi

On Tuesday April 18 2017, I came across “Business Recorder” report regarding “Domestic Debt” query in National Assembly, put forward by PPP’s Shagufta Juman in Question Hour session.

According to the statement in response to her enquiry Finance Minister Isaq Dar in a written statement said that since January 2012, the government paid Rs 5.397 Trillion interest on total domestic debt amounting to Rs 54.325 Trillion.

Based on outstanding, as of December 2016 in next three years, total maturity amount is Rs 11.075 Trillion.

After the maturity date to meet the funding shortage, FM was quoted by the paper that it will be refinanced at different junctures, which means liquidity will be provided at the time of maturity or as and when funding will be required. Sadly there was no follow up questions on the floor of National Assembly.

Unless BR report appearing about FM statement is incomplete or partly covered on the subject, it is shocking to learn that the FM said it is difficult to calculate future interest payments at this time. This is unbelievable and shocking.

Yes, I do agree with FM’s statement that it is difficult to calculate future interest payments, as no one on earth can provide absolute number. But, with FM’s financial background, 3 to 5 year calculation should be on his fingertip. He should have provided projected number with ease. For example if the total cost of funding was roughly around 10 pct and now is 8 pct, it can be calculated accordingly. Based on current SBP target rate and PIB coupon rate in next 3-years Domestic Debt will surge by roughly Rs 5.5 Trillion and in 5 years it will add around Rs 9 Trillion to the current number. (These are approximate numbers).

What worries most is the size of Debt in amount (Domestic & External), which is growing rapidly and hence interest payment too is rising at an alarming pace. It is strange that despite exports constantly struggling and Low Tax collection if measured against GDP growth, it is off target and still the approach is too complacent.

No sir, then I smell rate. We cannot be misguided by the statement presented in NA. The Fiscal Responsibility and Debt Limitation Act (FRDLA) Debt to GDP has comfortably breached existing statutory limit of 60 pct.

The real truth is that since last 5-7 years there is severe liquidity crunch (Rupee & Foreign Currency), which is why SBP is forced to inject funds through its fortnightly Open Market Operation (OMO).

While Central Bank’s FX Swap data suggest utilization of USD 3.6 Billion facility (SBP Monetary Tool), which is not a healthy sign.

What bothers most with Debt to GDP Ratio currently around 64.5 pct and your vision is to bring it down to 50 pct in next 15-years, then please let us know that what is your basis of calculation if you find it difficult to calculate the future interest payments at this time.




There is no disagreement on 5 % to 5.25 pct projected growth, but it is unlikely to make major impact on Revenue collection.

Interest rate is a crucial monetary tool, which is the key driver for any type of economy, as it not only influences the cost of borrowings, but it also helps to provide insight into future economic market activity.

It is true that in our environment it is difficult to determine specific impact due to turbulent economic condition that also demands effective fiscal policy, which provides interest rate direction.

However, in recent times, structure of inflation targeting is successfully practiced by the Central Banks all over the globe due to changing circumstances to attain desired result.

This is why faced with crisis, Major Central Banks have changed its strategy by deciding to opt for proactive measures by introducing important toolkit “Forward Guidance” to determine likely path of future policy rate.

It suggests that unlike past, CB’s does not want to keep its strategies secret anymore. It wants transparency all over and hence, it prefers to interact and communicates with the market.

Pakistan economy may do exceptionally well in next couple of years, but challenges will remain immense. With ongoing trend, managing Debt (External & Domestic) will not be sustainable unless forceful measures are taken against odds.

Funding shortage in next 3 years could see combine Debt surging to Rs 28-29 Trillion and in 5-years to Rs 32-33 Trillion. This means annual debt financing will be around Rs 2 Trillion.

Interest payment of Rs 5.397 Trillion on total domestic debt does not include external borrowing cost. Higher interest payment is the price for offering higher return in Government Securities in shape of Coupon and Yield due to extremely cautious and friendly approach by not making downward adjustment of policy rates in line with record low inflation that should have been either in straight line or Flat Yield Curve costing nearly 25-30 pct or nearly Rs 1.5 Trillion in excess

If SBP maintains its current policy stance of hike its policy rate in hast it is going to add burden on kitty. A hike of 1 pct would mean additional interest payment of Rs 500 Billion in 3-years and Rs 800 Billion in 5-years

Let better sense prevail by withdrawing SBP floor/cap (Corridor) and by slashing Policy Rate and Coupon Rate.


Business Recorder



(Disclaimer applies in my post, which means that the perspective is my personal view. I have made every effort to ensure accuracy of information provided. However, accuracy cannot be guaranteed. This article is strictly for information and not intended for Trade or Business Transaction). 



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