Pakistan's bonds hit 3-year high after credit rating upgrade
The rating firm's one notch increase to 'B-' cited the International Monetary Fund's support in stabilising Pakistan's strained finances.
KIBOR declines across short-term tenors amid policy rate cut expectations
The 2031 and 2036 maturities both gained around 1.6 cents on Friday to bid at 93.85 cents and 87 cents respectively, lifting them to their highest levels since early 2022.
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Business Recorder
2 days ago
- Business Recorder
Exchange rate volatility: Pakistan govt plans to minimise risks with hedging
ISLAMABAD: The government has planned to use hedging instruments to mitigate exchange rate volatility risks, besides efforts are under way to develop domestic futures and interest rate swap markets. This has been revealed in the 'Medium Term Debt Management Strategy (MTDS) fiscal year 2026-28,' released by the Debt Management Office, Finance Division. Nominal GDP is projected to increase from Rs114.7 trillion in fiscal year 2025 to Rs162.5 trillion by fiscal year 2028, reflecting an expected broad-based economic recovery. Commodity producing sectors are expected to expand, driven by agriculture and manufacturing. Pakistan achieves early retirement of Rs1.5trn public debt in FY25 Fiscal consolidation is expected to result in an average primary surplus of around one per cent of GDP during the strategy period, in line with the International Monetary Fund (IMF) programme targets. The strategy noted that the government is committed to actively manage foreign exchange (FX) risk. Innovative instruments, such as debt-for-nature swaps, are also being explored to manage external debt while reducing associated risks, it added. MTDS noted that total public debt as of end-fiscal year 2025 is estimated at Rs78.2 trillion (USD 275.9 billion), equivalent to around 68 per cent of estimated GDP. Over the past years, financing has increasingly been obtained from domestic sources. Consequently, the share of domestic debt increased from around 62 per cent of total public debt in fiscal year 2023 to around 68 per cent of total public debt in fiscal year 2025. Cost of debt in fiscal year 2025 remains elevated, particularly for domestic borrowing. The overall weighted average interest rate stands at 11.9 per cent, driven largely by the significantly higher cost of domestic debt relative to external sources. While external debt carries a much lower weighted average interest rate of 4.4 per cent, reflecting the high shares of concessional and semi-concessional financing, domestic debt bears a substantially higher average rate of 15.82 per cent, underscoring the high cost of domestic financing. As a result, interest payments have consumed nearly sixper cent of GDP in fiscal year 2025. Refinancing risk has declined as the Average Time to Maturity (ATM) of domestic debt improved from 2.7 years in June 2024 to 3.8 years in June 2025. The ATM for external debt remains over 6.1 years, resulting in an overall ATM of approximately 4.5 years. Interest rate risk is high for domestic debt, reflecting a shift to floating rate domestic debt instruments due to market demand over the past years, primarily due to a growing reliance on floating-rate instruments in response to market preferences. This trend was particularly evident in fiscal year 2023, when investors showed a strong preference for short- to medium-term floating-rate Pakistan Investment Bonds (PIBs), notably the 5-year tenor with semi-annual coupons. This shift was driven by expectations of continued interest rate hikes and a high policy rate environment, which peaked at 22 per cent during fiscal year 2023. Nearly 80 per cent of domestic debt is subject to an interest rate refixing in fiscal year 2026, with an average time to refixing (ATR) of only 1.2 years. ATR for external debt is higher at 4.5 per cent, reflecting a higher share of fixed rate debt. Foreign currency risk remains manageable regarding the share of foreign currency denominated debt in total public debt, which is expected to be moderate 32 per cent as of end-fiscal year 2025. The share of short-term external debt relative to reserves, however, remains high, reflecting both increased short-term external borrowing and the low level of reserves. Although, recent efforts have transpired into extending the maturity profile and contain currency risk, the MTDS fiscal year 2026-28 further shifts toward rebalancing the debt portfolio by increasing reliance on longer-term, fixed-rate domestic instruments and reducing exposure to short-term, high-cost borrowing. To achieve these goals, the efforts will be made to expand net issuances of fixed-rate Pakistan Investment Bonds (PIBs), including newly introduced zero-coupon bonds in both conventional and sharia markets, which have been designed to attract long-term institutional investors. Floating-rate issuance will be limited to longer tenor, while the share of Treasury Bills (T-bills) will be limited to avoid further short-term debt accumulation. A significant emphasis is also placed on deepening the domestic capital market through a targeted increase in Sharia-compliant instruments, aiming to exceed 20 per cent of total domestic securities. Copyright Business Recorder, 2025
Express Tribune
2 days ago
- Express Tribune
India plans new defence system
Indian Prime Minister Narendra Modi urged the country on Friday to move towards more self-reliance, manufacture everything from fertilisers to jet engines and EV batteries, and vowed to protect farmers in the face of a trade conflict with Washington. With the punishing tariffs imposed on Indian exports by US President Donald Trump expected to hurt growth in the world's fastest growing major economy, Modi announced lower goods and services taxes (GST) from October — a move that could help boost consumption. He also announced India would set up a new defence system called 'Sudarshan Chakra' in the aftermath of India's four-day military conflict with Pakistan in May. He did not elaborate but a government statement said the system is aimed at neutralising enemy infiltrations and enhancing India's offensive capabilities. Indian defence and policy circles have informally referred to the Russian S-400 air defence system — which played a key role during the fighting with Pakistan — as Sudarshan Chakra, after a Hindu mythological weapon. Modi was addressing the nation on the occasion of its Independence Day at a time New Delhi has been struggling with Trump's tariffs and the collapse of trade talks, largely due to differences over imports of American farm and dairy products. "Farmers, fishermen, cattle rearers are our top priorities," Modi said in his customary annual address from the ramparts of the Red Fort in New Delhi. "Modi will stand like a wall against any policy that threatens their interests. India will never compromise when it comes to protecting the interests of our farmers," he said. Modi did not mention the tariffs or the US in his speech that lasted nearly two hours. Last week, Trump imposed an additional 25% tariff on Indian goods, citing New Delhi's continued imports of Russian oil in a move that sharply escalated tensions between the two nations. The new import tax will raise duties on some Indian exports to as high as 50% — among the highest levied on any US trading partner. Modi has never spoken about the tariffs directly, only alluding to them in a speech last week, where he swore to protect the interests of farmers, even if it came at a personal price. Farmers are a key political constituency in India and they violently protested against Modi's last big push to reform the sector, forcing him to repeal three farm laws in 2021 in what was a rare defeat for him. Tax cuts to boost consumption Although local manufacturing and self-reliance have been Modi's key focus areas for years now, the push is seen to have gained urgency amid ongoing global trade tensions and supply chain disruptions. "The need of the hour is to take a resolve for building a strong India ... I want our traders, shopkeepers to display boards for 'Swadeshi' products," Modi said, using the Hindi word for made in India goods. Reuters
Business Recorder
2 days ago
- Business Recorder
Exchange rate volatility: Govt plans to minimise risks with hedging
ISLAMABAD: The government has planned to use hedging instruments to mitigate exchange rate volatility risks, besides efforts are under way to develop domestic futures and interest rate swap markets. This has been revealed in the 'Medium Term Debt Management Strategy (MTDS) fiscal year 2026-28,' released by the Debt Management Office, Finance Division. Nominal GDP is projected to increase from Rs114.7 trillion in fiscal year 2025 to Rs162.5 trillion by fiscal year 2028, reflecting an expected broad-based economic recovery. Commodity producing sectors are expected to expand, driven by agriculture and manufacturing. Pakistan achieves early retirement of Rs1.5trn public debt in FY25 Fiscal consolidation is expected to result in an average primary surplus of around one per cent of GDP during the strategy period, in line with the International Monetary Fund (IMF) programme targets. The strategy noted that the government is committed to actively manage foreign exchange (FX) risk. Innovative instruments, such as debt-for-nature swaps, are also being explored to manage external debt while reducing associated risks, it added. MTDS noted that total public debt as of end-fiscal year 2025 is estimated at Rs78.2 trillion (USD 275.9 billion), equivalent to around 68 per cent of estimated GDP. Over the past years, financing has increasingly been obtained from domestic sources. Consequently, the share of domestic debt increased from around 62 per cent of total public debt in fiscal year 2023 to around 68 per cent of total public debt in fiscal year 2025. Cost of debt in fiscal year 2025 remains elevated, particularly for domestic borrowing. The overall weighted average interest rate stands at 11.9 per cent, driven largely by the significantly higher cost of domestic debt relative to external sources. While external debt carries a much lower weighted average interest rate of 4.4 per cent, reflecting the high shares of concessional and semi-concessional financing, domestic debt bears a substantially higher average rate of 15.82 per cent, underscoring the high cost of domestic financing. As a result, interest payments have consumed nearly sixper cent of GDP in fiscal year 2025. Refinancing risk has declined as the Average Time to Maturity (ATM) of domestic debt improved from 2.7 years in June 2024 to 3.8 years in June 2025. The ATM for external debt remains over 6.1 years, resulting in an overall ATM of approximately 4.5 years. Interest rate risk is high for domestic debt, reflecting a shift to floating rate domestic debt instruments due to market demand over the past years, primarily due to a growing reliance on floating-rate instruments in response to market preferences. This trend was particularly evident in fiscal year 2023, when investors showed a strong preference for short- to medium-term floating-rate Pakistan Investment Bonds (PIBs), notably the 5-year tenor with semi-annual coupons. This shift was driven by expectations of continued interest rate hikes and a high policy rate environment, which peaked at 22 per cent during fiscal year 2023. Nearly 80 per cent of domestic debt is subject to an interest rate refixing in fiscal year 2026, with an average time to refixing (ATR) of only 1.2 years. ATR for external debt is higher at 4.5 per cent, reflecting a higher share of fixed rate debt. Foreign currency risk remains manageable regarding the share of foreign currency denominated debt in total public debt, which is expected to be moderate 32 per cent as of end-fiscal year 2025. The share of short-term external debt relative to reserves, however, remains high, reflecting both increased short-term external borrowing and the low level of reserves. Although, recent efforts have transpired into extending the maturity profile and contain currency risk, the MTDS fiscal year 2026-28 further shifts toward rebalancing the debt portfolio by increasing reliance on longer-term, fixed-rate domestic instruments and reducing exposure to short-term, high-cost borrowing. To achieve these goals, the efforts will be made to expand net issuances of fixed-rate Pakistan Investment Bonds (PIBs), including newly introduced zero-coupon bonds in both conventional and sharia markets, which have been designed to attract long-term institutional investors. Floating-rate issuance will be limited to longer tenor, while the share of Treasury Bills (T-bills) will be limited to avoid further short-term debt accumulation. A significant emphasis is also placed on deepening the domestic capital market through a targeted increase in Sharia-compliant instruments, aiming to exceed 20 per cent of total domestic securities. Copyright Business Recorder, 2025
