Latest news with #MTDS
Business Recorder
3 days ago
- Business
- 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
Business Recorder
3 days ago
- Business
- 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
Business Recorder
10-05-2025
- Business
- Business Recorder
Economic reforms, transformation: Aurangzeb briefs leading global investors
ISLAMABAD: Finance Minister Muhammad Aurangzeb has said that Pakistan is not just reforming, it is transforming, and 'it is open for business and for investors seeking impact, scale, and certainty- Pakistan offers all three.' He made this statement during a strategic meeting held with a group of leading global investors in London, including Oliver Williams, Emerging Markets Fixed Income Portfolio Manager at Amundi, and Maud Le Moine of Lion's Head Global Partners, to discuss Pakistan's economic outlook, reform agenda, and future investment prospects, Said a release issued here on Friday. The Finance Minister provided a comprehensive overview of Pakistan's macroeconomic recovery, citing key achievements including a primary budget surplus of PKR 3.6 trillion, a current account surplus, inflation reduced to 0.3% (April 2025), and a drop in debt-to-GDP ratio from 75% to 65%. These indicators, he noted, have not only stabilized the economy but have also led to improved sovereign credit ratings and renewed confidence from multilateral and bilateral partners. In the discussion, the Minister emphasized that Pakistan is firmly staying the course on reforms, aiming to transition from a consumption-led to a sustainable, export- and productivity-led growth model. He highlighted new tax reforms aimed at bringing real estate, wholesale, retail, and agriculture sectors into the formal net, while ensuring end-to-end digitalization of the tax authority to minimize human discretion and reduce corruption. Minister Aurangzeb outlined the government's ambitious sectoral diversification strategy, citing the upcoming minerals conference and the landmark copper agreement expected to contribute USD 2.8 billion annually to exports by 2028. He also drew attention to the thriving digital economy, where Pakistan is now the third-largest global player in IT freelancing, and reiterated the central role of digital transformation in enabling inclusive and equitable growth. He further briefed attendees on Pakistan's plan to issue a Panda bond as part of its active debt management strategy, and on future steps under the Medium-Term Debt Management Strategy (MTDS). Discussions included the restructuring of state-owned enterprises (Wave 5), ongoing pension reforms, and the preparation for ESG bond issuance in FY2026. Amundi, one of the world's top 10 asset managers with over €2 trillion in assets under management, reaffirmed its interest in Pakistan's sovereign instruments and ESG-aligned investments. Oliver Williams welcomed the clarity and credibility of Pakistan's macroeconomic direction and expressed a strong interest in the country's upcoming bond issuance plans.
Business Recorder
09-05-2025
- Business
- Business Recorder
Global investors respond positively to Pakistan's economic reforms
Global investors have responded positively to Pakistan's reform and economic transformation agenda, as leading firms, including Amundi and Lion's Head Global Partners, reaffirmed their interest in Pakistan's sovereign instruments and upcoming ESG-aligned initiatives. The response came during Finance Minister Muhammad Aurangzeb's strategic meeting with a group of leading global investors in London, including Oliver Williams, Emerging Markets Fixed Income Portfolio Manager at Amundi, and Maud Le Moine of Lion's Head Global Partners, to discuss Pakistan's economic outlook, reform agenda, and future investment prospects, read a statement released by the Finance Division on Friday During the meeting, Aurangzeb said that Pakistan is not just reforming, it is transforming, and 'it is open for business and for investors seeking impact, scale, and certainty- Pakistan offers all three.' The finance minister briefed attendees on Pakistan's plan to issue a Panda bond as part of its active debt management strategy, and on future steps under the Medium-Term Debt Management Strategy (MTDS). Aurangzeb meets CEO of Standard Chartered Bank Discussions included the restructuring of state-owned enterprises (Wave 5), ongoing pension reforms, and the preparation for ESG bond issuance in FY2026. As per the statement issued by the Finance Division, Amundi, one of the world's top 10 asset managers with over €2 trillion in assets under management, reaffirmed its interest in Pakistan's sovereign instruments and ESG-aligned investments, read the statement. Oliver Williams also expressed a strong interest in the country's upcoming bond issuance plans. Meanwhile, Maud Le Moine of Lion's Head Global Partners — a firm specialising in emerging market advisory — offered targeted technical support to help Pakistan strengthen its investor communications, enhance credit rating engagement, and implement energy sector modelling. Lion's Head also reaffirmed its interest in supporting Pakistan's MTDS. The finance ministry acknowledged the offer and reiterated that any advisory engagement would adhere to public procurement processes, read the statement. On the issue of Pakistan's water treaty policies, Aurangzeb reaffirmed that the suspension of sovereign water rights is not acceptable. He also reiterated the government's commitment to inclusive growth, noting that the Benazir Income Support Programme (BISP) will continue in the upcoming budget. During the meeting, Aurangzeb provided a comprehensive overview of Pakistan's macroeconomic recovery, citing key achievements including a primary budget surplus of Rs3.6 trillion, a current account surplus, inflation reduced to 0.3% (April 2025), and a drop in the debt-to-GDP ratio from 75% to 65%. 'These indicators have not only stabilised the economy but have also led to improved sovereign credit ratings and renewed confidence from multilateral and bilateral partners,' the finance minister said. During the discussion, Aurangzeb emphasised that Pakistan is firmly staying the course on reforms, aiming to transition from a consumption-led to a sustainable, export- and productivity-led growth model. He highlighted that new tax reforms aimed at bringing real estate, wholesale, retail, and agriculture sectors into the formal net, while ensuring end-to-end digitalisation of the tax authority to minimise human discretion and reduce corruption. Aurangzeb outlined the government's ambitious sectoral diversification strategy, citing the upcoming minerals conference and the landmark copper agreement expected to contribute $2.8 billion annually to exports by 2028.
