ISLAMABAD: The Finance Ministry has termed composition of domestic debt as main reason for the increase in public debt, Customs Today reliably learnt on Tuesday.
“Banks changed their interest rate outlook and sharply increased their participation in Pakistan Investment Bonds (PIBs) last year which resulted in a sharp increase in the public debt and,” a well-placed official source at Finance Ministry told this scribe here on Tuesday. “With an addition of Rs 1.3 trillion during third quarter of the current fiscal year, country’s public debt reached Rs 15.9 trillion,” the source said adding that although a large part of this increase was seen in the first quarter of the financial year yet government debt resumed its upward trajectory in third quarters, after falling slightly in the second quarter of FY14.
The source said that around one-half of the entire amounts, Rs 977.5 billion mobilized via PIBs in the third quarter had been raised through 3 year paper, with an effective maturity of slightly more than two years. “The significance of the change in sentiments can be gauged by comparing third quarter with situation in the first two quarters of fiscal year,” the source added. The source said that change in banks’ behavior led to an improvement in the tenor-wise composition of domestic debt as the share of medium term debt with maturity between 1–3 years, increased to 10.4 % in by March 2014 as compared to 5.8 % at end of fiscal year 2012-13. “Likewise, short term-debt fell from 57.6 % on end-Jun 2013 to 52.6% by end of March 2014,” the source observed.
Moreover, the source said that T-bills also lost their attractiveness following the change in market perception about interest rates and it was sharp a reversal in the behavior of banks because offered amounts were much lower, despite the increase in targets. Therefore, the source said that the net-of-maturity acceptance of T-bills stood at negative i.e Rs 730.6 billion in the third quarter of the current fiscal year while on the other hand, banks’ PIB holdings more than doubled from Rs 744.3 billion to Rs 1.5 trillion during this period. Similarly, the US$ 1.5 billion grant alleviated the financing pressures on the central bank. This, along with the substantial mobilization through PIBs, was instrumental in the large retirement to the central bank during Q3-FY14,” the source observed.