Govt to Save Rs. 1.3 Trillion in Interest Expense Due to Lower Interest Rate

The federal government is likely to save around Rs. 1.3 trillion or 1 percent of the GDP due to a decline in interest rates, buybacks of securities and decline in external debt. The State Bank of Pakistan (SBP) Governor highlighted this during the analyst briefing after the Monetary Policy Committee (MPC) of the central bank announced a fourth consecutive rate cut and reduced the policy rate by 250bps to 15 percent, according to Topline Securities. The government has targeted interest expenses of Rs. 9.8 trillion for FY25, however, after decline in interest rates, buybacks of securities and decline in external debt, the interest expense would be lower than Rs. 8.5 trillion. The central bank said that debt repayments for FY25 are $26.1 billion, slightly down from $26.2 billion due to interest expense adjustment. For the next 8 months, the government has to pay $6.3 billion, the rest would be either rolled over or refinanced. As of June 2024, short term securities made up around 24 percent of the domestic debt, now this has come down to 21 percent. By the end of this FY25, this ratio will further come below 20 percent. The SBP governor also said that reserves would be well above the target level of $13 billion by Jun 2025. The Asian Development Bank (ADB) is also likely to disburse around $500 million in next few weeks, which will take reserves to more than $11.5 billion. The remittance up trend is continuing and the October 2024 number will be around $3 billion. This will take the four-month current account deficit to a negligible level. While responding to a question regarding funding gap mentioned in IMF staff report, the governor highlighted that, after filling that gap, Pakistan case was forwarded to IMF’s board. There is no more funding gap during the IMF program. The governor also highlighted that current monetary policy has enough room to accommodate any variation of 10-15 percent in oil prices and other commodities. SBP believes that FY25 average inflation will fall below the earlier disclosed range of 11.5-13.5 percent. The exact range of inflation will be disclosed in Jan 2025.