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The State Bank of Pakistan (SBP) announced a 250bps policy rate cut in today’s Monetary Policy Committee meeting, aiming to support economic activity while managing inflation and debt obligations. Here are the key highlights:
External Debt Management
For FY25, Pakistan faces external debt obligations totaling USD 26.1 billion, with USD 22 billion as principal and USD 4 billion in interest. Nearly USD 16.4 billion is anticipated to be rolled over, with USD 2.3 billion already extended. Pakistan has so far repaid USD 5.7 billion, including the rollover, leaving USD 6.3 billion to be repaid over the remaining eight months of FY25.
Macroeconomic Projections for FY25
- GDP Growth: Expected to range between 2.5% and 3.5%.
- Current Account Deficit (CAD): Projected to stay between 0-1% of GDP.
- Inflation: Estimated to average below the previous forecast of 11.5%-13.5%.
- SBP Reserves: Expected to surpass USD 13 billion by the end of FY25, up from the current USD 11.2 billion.
Debt Reprofiling Initiatives
SBP reported on government-led debt restructuring, emphasizing a shift from short-term to long-term external debt. Domestically, the government has reduced the share of short-term Treasury bills in total debt, from 24% in FY24 to 21% in 4MFY25, with a goal of further reducing it below 20% by the fiscal year’s end. This strategy allows for more sustainable debt servicing by favoring longer-term bonds.
Government Interest Expense
The government’s interest payments for FY25 are forecasted to decline, aided by PKR stability, the recent rate cut, and a lower overall debt stock. Interest payments initially budgeted at PKR 9.8 trillion for FY25 are now projected to be slightly above PKR 8.2 trillion from last year but below PKR 8.5 trillion.
Debt-to-GDP Ratio
As of June 30, 2024, Pakistan’s total public debt stood at 75% of GDP. This has since decreased to 67.2%, reflecting improved fiscal discipline and debt management.
Current Account Deficit and Remittances
The current account deficit remains manageable, supported by remittance inflows projected to exceed USD 3 billion for October 2024. SBP continues to monitor global commodity prices, such as oil, to incorporate any potential impact into its forecasts, accounting for a 10-15% price variance.
Funding and Reserve Position
The SBP confirmed no current funding gap, in alignment with IMF assessments. Additionally, a USD 500 million loan from the Asian Development Bank is expected to raise SBP reserves to around USD 11.7 billion by next week, strengthening Pakistan’s financial position.
