Planning & Implementing 

a Debt Strategy in Pakistan

By:

Jaffer Askari
Economist (DPCO)
Overview
™ Introduction

™ Structure and Dynamics of Debt in Pakistan

™ Pakistan’s Debt Strategy
™ Debt Process

™ Characteristics of Debt Strategy

™ Challenges and Future Prospects

™ Conclusion
Introduction
™ Sound  debt  management  practices  ensure  that  the  level  and  rate  of 
growth  of  public  debt  do  not  unduly  limit  the  country’s  monetary, 
fiscal  or  exchange  rate  flexibility,  or  leave  the  country  seriously 
exposed to changing financial market conditions.

™ Debt  policy  is  a  dynamic  financing  policy  that  has  to  react  to 
implementation  of  various  public  policies  and  actual  performance of 
the economy.

™ Debt policy will not drive public policy but will respond to it and act as 
a constraint to public policy (over) ambitions

™ Improving the quality of debt management can achieve only so much; 
ultimately, fiscal policy determines the borrowing requirements and is 
the main influence on the stock of debt over time.
™ Prudent  debt  management  strategy,  along  with  sound  macroeconomic
and structural adjustment  policies, is essential for containing the impact 
of financial markets shocks.
™ Strong  interdependence    among  debt  management  policy,  fiscal  policy, 
monetary policy and daily cash flow management;
™ Government  debt  management  generally  operates  more  efficiently  if 
responsibility  for  decision  making  and  implementation  is  not  spread 
across several government departments i.e. 
¾ Daily cash management;
¾ domestic borrowing;
¾ Guarantees;
¾ donor finance;
¾ market related foreign currency borrowing and
¾ Borrowing from multilateral development banks. 
 Policy Objective

To provide secure financing for the federal

government at low cost in the long run by
giving due consideration to the risks
involved, at a high professional level by
using sophisticated methods.
Structure and Dynamics of 
Debt in Pakistan
™ Public Debt at 58 % of GDP

™ External Debt & Liabilities US$ 52.8 billion 

™ Domestic Debt 29.5 % of GDP.
Pakistan’s Debt Strategy
™ Debt management in Pakistan is governed by guidelines 
provided in the “Fiscal Responsibility and Debt Limitation Act, 
2005.”

™ FRDL Act sets specific targets and goals for current and future 
levels of debt.

™ The route to achieving these targets is up to debt managers 
and policymakers.
 Features of the FRDL Act 2005
™ Eliminate Revenue Deficit by June 2008

™ Public Debt to GDP should be 60% by June 2013 and reduce 
by 2.5% every year for 10 years starting 2003 provided 4.5% 
minimum expense on poverty and social sector while 
education and health allocation to double during next 10 
years.

™ Issuance of Guarantees of all kinds should be maximum 2% of 
GDP every year including renewals.
 Features of the FRDL Act 2005
™ In case of failure to comply with any of these provisions, the 
Minister shall specify the reasons for the departure and 
recommend measures to return to those principles as well as 
a time frame.

™ Economic Policy Statement: (a) Medium Term Budgetary 
Statement‐3 years, (b) Fiscal Policy and (c) Debt Policy 
statements.
Debt Process
 DEBT PROCESS
™ Multiple authorities involved in process
™Ministry of Finance
™DPCO
™Budget Wing
™External Finance Wing
™Central Directorate of National Savings
™State Bank of Pakistan
™Economic Affairs Division
State Bank of  Ministry of  Economic Affairs 
Pakistan Finance Division

Budget External Finance  Debt Policy  Central Directorate of 

 Wing Wing Coordination Office National Savings

*   Domestic Debt *   External Financing *  Domestic Debt *   Non‐Bank

*   Fiscal Data and  *   External Account *   Policy Advice   Domestic Debt
     Projections      Data & Projections *   Debt Management

*   Domestic Debt *   Negotiation, Signing,
*   Exchange Rate      Disbursement & Repayment 
*   Servicing of Foreign Debt      of Foreign Debt
 Debt Process
™ Identification of Borrowing Requirement
™Fiscal Data, External Account Data, Annual Borrowing 
Requirement
™ Identification of Borrowing Sources
™Domestic Sources (Bank, Non‐bank), External Financing
™ Issuance/Signing/Contracting of Debt
™ Repayments and Servicing
 Debt Process

™ Risk Management and Analysis

™ Interest Rate Risk

™ Currency Exposure

™ Maturity Profile

™ Macroeconomic Shocks

™ Ensure Debt Sustainability and Budget Solvency.
 Characteristics of Debt Strategy
™ Current Debt Strategy Includes:

™Limit on borrowing from State Bank
™Stand By Arrangement, IMF
™Long‐Term Concessional External Borrowing
™Currency Composition
™Capitalize on low international interest rate environment
™Accessing International Markets
™Reform of CDNS
™Development of Domestic Markets
Challenges and Future Prospects
Challenges
™Low Tax‐to‐GDP places greater emphasis on debt 
creation.

™Lack of long‐term investment avenue in domestic 
markets.

™Cost of domestic non‐bank borrowing.

™Reliance on foreign currency debt.
Challenges

™Number of bodies/departments involved in debt 
process/policy

™Data transmission

™Strengthening of DPCO
Future Prospects
™ Debt origination process and data may be centralized;
™ Decision on auction targets, cut‐offs and rates on NSS may be centralized 
and should be aligned with banking sector liquidity, monetary and other 
macroeconomic variables; 
™ CDNS may be restructured and converted into a vibrant customer centric 
distribution channel for government debt instruments. Transfer pricing 
mechanism may be introduced to induce efficiency;
™ Reduce the number of saving schemes to generic products;
™ A secondary market for NSS may be developed to ensure long term 
liquidity to the government;
™ Development of vibrant secondary market for government securities and 
revamping of Primary Dealership operations.
™ Performance benchmarks for debt management.
  

Delegate  Parliament
Authority  Accountability
 
Set Long‐term 
Objectives 
Finance 
Decision 
 
Strategy 
Minister Consultation
 

DMC

Strategy  Proposal Strategy  Reporting & 

Power to Borrow  Implementation based on  Oversight, 
and  Analysis
DG   Audit 
 Transact 
DPCO 
Thank you
 Total Public Debt
Public Debt, FY05-FY09*
FY05 FY06 FY07 FY08 FY09
(In billions of Rs.)
Domestic Currency Debt 2152 2322 2600 3266 3851
Foreign Currency Debt 1913 2041 2213 2735 3746
Total Public Debt 4064 4363 4814 6001 7597
(In percent of GDP)
Rupees Debt 33.1 30.5 29.8 31.2 29.4
Foreign Currency Debt 29.4 26.8 25.4 26.1 28.6
Total Public Debt 62.5 57.2 55.2 58.4 58.0
(In percent of Revenue)
Rupees Debt 239 216 200 218 208
Foreign Currency Debt 212 190 170 182 202
Total Public Debt 452 405 371 400 410
(In percent of Total Debt)
Rupees Debt 52.9 53.2 54.0 54.4 50.7
Foreign Currency Debt 47.1 46.8 46.0 45.6 49.3
Memo:
Foreign Currency Debt ($ Billion) 32.1 33.9 36.5 40.7 46.3
Exchange Rate (Rs./U.S.$, E.O.P) 59.7 60.2 60.6 67.2 80.9
GDP (in Rs. Billion) 6500 7623 8723 10284 13095
Total Revenue (in Rs. Billion) 900 1077 1298 1499 1851
Source: EAD, SBP, EA Wing, MoF and DPCO staff calculations * Provisional
 Total Public Debt

Total Public Debt, FY05‐FY09
as % of GDP

62.5

58.4 58.0
57.2
55.2

FY05 FY06 FY07 FY08 FY09

 External Debt and Liabilities
FY05 FY06 FY07 FY08 FY09
(In billions of U.S. dollars)
1. Public and Publically Guaranteed 31.084 32.898 35.349 40.243 42.225
A. Medium and long term(> 30.813 32.729 35.324 39.530 41.565
Paris club 13.014 12.785 12.694 13.928 13.998
Multilateral 15.359 16.821 18.687 21.583 23.062
Other bilateral 0.805 0.920 1.002 1.189 1.990
Euro bonds/Saind 1.265 1.908 2.713 2.665 2.150
Military debt 0.188 0.130 0.083 0.041 0.199
Commercial Loans 0.182 0.165 0.145 0.124 0.166
B. Short Term (<1 year) 0.271 0.169 0.025 0.713 0.661
IDB 0.271 0.169 0.025 0.713 0.661
2. Private Non-guaranteed Debt (>1 1.342 1.585 2.252 2.887 3.344
3. IMF 1.611 1.491 1.407 1.337 5.148
Total External Debt (1 through 3) 34.0 36.0 39.0 44.5 50.7
Of Which Public 32.1 33.9 36.5 40.7 46.3
4. Foreign Exchange Liabilities 1.8 1.6 1.5 1.8 2.1
5.Total External Debt & Liabilities 35.8 37.6 40.5 46.3 52.8
(of which) Public Debt 32.1 33.9 36.5 40.7 46.3
Official Liquid Reserves 9.8 10.8 13.3 8.6 7.1
(In percent of GDP)
Total External Debt (1 through 3) 31.1 28.2 27.1 27.0 30.4
1. Public and Publically Guaranteed 28.4 25.8 24.6 24.6 25.3
A. Medium and long term(> 28.1 25.7 24.6 24.1 24.9
B. Short Term (<1 year) 0.2 0.1 0.0 0.4 0.4
3. IMF 1.5 1.2 1.0 0.8 3.1
Total External Debt 31.1 28.2 27.1 27.0 30.4
4. Foreign Exchange Liabilities 1.6 1.2 1.0 1.1 1.2
Total External Debt & Liabilities (1 32.7 29.5 28.1 28.2 31.6
Official Liquid Reserves 9.0 8.5 9.3 5.2 4.3
Memo:
GDP (in billions of Rs.) 6500 7623 8723 10248 13095
 External Debt

Currency Composition of Public and 
Publically Guaranteed External Debt

5% 13%
28% Euro

29% Japanese Yen
Special Drawing Right
25% United States Dollar
Others
 Outstanding Domestic Debt, FY05-FY09 (in billions of Rs.)

Permanent Debt
Market Loans
Government Bond
Domestic Debt FY05
526.3
2.9
9.5
FY06
514.9
2.9
9.6
FY07
562.7
2.9
9.6
FY08
616.8
2.9
9.3
FY09
686.0
2.9
7.8
Prize Bonds 162.2 165.5 174.5 182.8 197.4
Foreign Exchange Bearer Certificates 0.6 0.3 0.2 0.2 0.0
Bearer National Fund Bonds 0.0 0.0 0.0 0.0 0.0
Federal Investment Bonds 14.5 6.6 3.1 0.9 0.9
Special National Fund Bonds 0.0 0.0 0.0 0.0 0.0
Foreign Currency Bearer Certificates 0.1 0.1 0.1 0.1 0.0
U.S. Dollar Bearer Certificates 0.2 0.0 0.0 0.2 0.0
Special U.S. Dollar Bonds 25.1 14.8 9.4 8.2 7.7
Government Bonds Issued to SLIC 3.6 1.5 0.6 0.6 0.6
Pakistan Investment Bonds (PIB) 307.6 303.8 352.5 411.6 440.9
Government Bonds issued to HBL 0.0 9.8 9.8 0.0 0.0
GOP Ijara Sukuk 0.0 0.0 0.0 0.0 27.8

Floating Debt 778.2 940.2 1,107.6 1,637.4 1,903.4

Ad hoc Treasury Bills 0.0 0.0 0.0 0.0 0.0
Treasury Bills on Tap 0.0 0.0 0.0 0.0 0.0
Treasury Bills through Auction 452.7 432.1 655.5 536.4 795.5
Rollover of Treasury Bills discounted SBP 0.6 0.6 0.6 0.6 0.6
Treasury Bills purchased by SBP (MRTBs) 324.9 507.5 451.5 1,052.6 1,107.3
Outright Sale of MTBs 0.0 0.0 0.0 47.8 0.0
Unfunded Debt 873.2 881.7 940.0 1,020.3 1,269.2
Defence Savings Certificates 303.5 295.9 289.0 284.6 257.6
Khas Deposit Certificates and Accounts 0.6 0.6 0.6 0.6 0.6
National Deposit Certificates 0.0 0.0 0.0 0.0 0.0
Savings Accounts 9.1 8.8 18.7 27.7 16.1
Mahana Amadni Account 2.4 2.4 2.5 2.5 2.4
Postal Life Insurance 56.3 67.1 67.1 67.1 67.1
Special Savings Certificates and Accounts 250.7 192.2 208.3 227.6 376.9
Regular Income Scheme 85.2 69.7 51.3 51.0 91.0
Pensioners' Benefit Account 41.1 57.5 69.0 87.7 109.9
Bahbood Savings Certificates 83.3 143.0 190.2 229.0 307.5
G.P. Fund 41.0 44.5 43.3 42.5 40.1
Total Domestic Debt 2,177.6 2,336.9 2,610.3 3,274.5 3,858.6
Total Domestic Debt (excluding foreign
currency debt included in external debt) 2,151.6 2,321.7 2,600.6 3,265.8 3,850.9
Source: Budget Wing, MoF and DPCO staff calculations
 
 Domestic Debt
Outstanding Domestic Debt, FY09
Amount YTM
Duration
(in millions of (in
(in years)
Rs.) percent)
T-Bills 791,062 12.95 0.61
PIBs 445,419 10.42 4.23
FIB 940 15.00 0.17
Sukuk 27,848 11.94 2.21
Market Debt 1,265,269 12.04 1.92
NSS 1,356,176 13.81 3.63
Others 128,893 11.26 6.91
NSS & Others 1,485,069 13.59 3.91
SBP 1,107,349 12.75 0.33
Total Domestic
3,857,687 12.84 2.23
Debt
Source: DPCO