The federal government of Pakistan is projected to save approximately Rs. 1.3 trillion, equivalent to 1 percent of the GDP, due to a combination of reduced interest rates, strategic buybacks of securities, and a decrease in external debt.
This was revealed by the Governor of the State Bank of Pakistan (SBP) during an analyst briefing following the Monetary Policy Committee’s (MPC) decision to implement a fourth consecutive rate cut, lowering the policy rate by 250 basis points to 15 percent, as reported by Topline Securities.
The government’s initial target for interest expenses in the fiscal year 2025 was set at Rs. 9.8 trillion. However, with the recent financial adjustments, these expenses are expected to fall below Rs. 8.5 trillion. The central bank also reported that debt repayments for FY25 are estimated at $26.1 billion, a slight reduction from the previous $26.2 billion due to adjustments in interest expenses. Over the next eight months, the government is required to pay $6.3 billion, with the remainder to be rolled over or refinanced.
As of June 2024, short-term securities constituted about 24 percent of the domestic debt, a figure that has now decreased to 21 percent. By the end of FY25, this ratio is anticipated to drop below 20 percent.
The SBP Governor also assured that foreign reserves are expected to exceed the target of $13 billion by June 2025. The Asian Development Bank (ADB) is likely to disburse around $500 million in the coming weeks, which will boost reserves to over $11.5 billion. Additionally, the upward trend in remittances continues, with October 2024 figures projected to reach approximately $3 billion, significantly reducing the four-month current account deficit.
Addressing concerns about the funding gap mentioned in the IMF staff report, the Governor confirmed that the gap has been addressed, and Pakistan’s case has been forwarded to the IMF board, ensuring no further funding gaps during the IMF program.
The Governor also stated that the current monetary policy has sufficient flexibility to accommodate fluctuations of 10-15 percent in oil and other commodity prices. The SBP anticipates that the average inflation rate for FY25 will fall below the previously disclosed range of 11.5-13.5 percent, with the exact figures to be announced in January 2025
