Savings of Rs.1.3 trillion: Government likely to gain with low-interest-rate scenario as interest cost falls.
The government of Pakistan will be saving Rs. 1.3 trillion or one percent of the gross domestic product as a consequence of the reduction in interest rates and the purchase of government securities followed by an external debt that went lower. This was said by the State Bank Governor after giving an analyst briefing following the Central Bank’s announcement about cutting the 15% policy rate by 250 basis points.
Interest Expense to Fall for FY25
While the government had estimated its interest expenses at Rs 9.8 trillion for FY25, falling interest rates, buyback of government securities, and decline in external debt have now expected to bring this figure to below Rs 8.5 trillion with great cost savings.
The central bank mentioned that the amount to be repaid towards debt in FY25 would be at $26.1 billion, which is a lesser amount than the previous amount projected at $26.2 billion. The primary cause for this reduction has been interest expenses. The government would pay back an amount of $6.3 billion over the next 8 months. The remaining would be refinanced or rolled over.
Improvement in Debt Structure
Short-term securities account for approximately 24% of Pakistan’s domestic debt as of June 2024. The ratio has already declined to 21% and is expected to fall below 20% by the end of FY25, which will reflect improved debt management across the country.
Reserves and IMF Program Update
The Governor of SBP also gave an assurance that the country‘s foreign exchange reserves would surpass the $13 billion mark by June 2025. The Asian Development Bank is expected to disburse its $500 million inflow in the coming weeks that would push the reserves to over $11.5 billion.
The governor assured that the funding gap mentioned in the IMF’s staff report has been filled and that Pakistan‘s case has now been forwarded to the IMF Board. He said that there are no further funding gaps in the ongoing IMF program.
Outlook for Inflation and Oil Prices
The existing monetary policy will accommodate flexibility in adjusting the shocks of changes in global oil prices and other commodities. The SBP projects that inflation for FY25 will be lower than the earlier range of 11.5% to 13.5%. Inflation is expected to be estimated more precisely in January 2025.
