The Federal Finance Minister Ishaq Dar has directed the Debt Management Office to keep a close watch on variations in the debt portfolio and suggest measures towards improving the cost and maturity levels. He further underscored the need for exploring opportunities being provided in movement of international currencies. However, this is only possible if the right kind of staff is appointed in the Debt Management Office having the requisite expertise and provided with accurate data. It is also debated whether the job entails one's background in treasury operations, etc. Unfortunately, however, the real decision-making authority rests elsewhere and the Debt Management Office has no role to play in domestic or external debt and has only an advisory role in the auction for treasury bills (T-bills) and longer tenor Pakistan Investment Bonds (PIBs). Even the role of State Bank of Pakistan stands reduced to an advisory consultant because it is the Ministry of Finance which ultimately decides on the governmental debt.
SBP can only inform the government and the nation that banks' holding of government securities, as of end August, stands at 85 percent of their total liquid assets. And, banks are increasing using SBP's revenue repo facilities to lend to the government for its budgetary needs. Despite a 100 basis points reduction in its policy rate, scheduled banks can still finance the fiscal deficit as banks earn 0.5 percent as locked-in yield, at zero risk and cost, while lending to the government. According to budget documents, mark-up payment, this financial year, would be to the tune of Rs 1.28 trillion. This shows that despite a saving due to a reduction in international oil price of 1.8 billion dollars a year, and a reduction in interest rates, reliance on SBP for financing the budgetary deficit has not been reduced. External debt as a percentage of total debt stands reduced because the domestic debt has increased. In fact, the stock of external debt as a percentage of our export receipts has gone up to 19.3 from 17.3 in the last two years of this government and debt servicing as a percentage of our total expenditure has also risen from 20.8 to 21.8 percent and the interest payments on domestic debt shows a year-on-year growth of 12.7 percent as of last financial year (FY15) compared to a year ago (FY14). As the stock of government domestic debt has risen by Rs 1,287 billion in the corresponding period so where is the improvement? Despite a fall in domestic interest rates and a window of opportunity provided by a reduction in crude oil and POL imported products international prices in the import bill, we do not seem to have our act together and the twin deficit of fiscal and current account persists.
Debt Management Office needs to keep itself abreast that the short-term liabilities as a percentage of our dollar inflows, ie, export earnings of goods and services plus home remittances, has to come down. Similarly the crowding out effect on private sector credit from banks, due to increased governmental borrowings from scheduled banks should come to an end. Therefore, the composition, cost and maturity of debt portfolio need to be managed in a sustainable way ensuring growth.
However, the real problem remains. Debt Management Office is in essence non-existent. Its role remains advisory. External debt is managed by the External Wing of Ministry of Finance and domestic debt by the Budget Wing in the same ministry. Market-based salaries are required in the Debt Management Office, as on MP-1 scales (half a million rupees) only retired or persons of junior standing would apply for the job. This needs to be clearly understood by the Finance Minister. The bureaucrats around him would not be happy if he has more access to the general public. They are his gatekeepers and are indeed very good at keeping the Finance Minister isolated.
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