- Proportion of fixed-rate debt, ATR, and share of debt stock remain the key indicators
LAHORE: With interest payment of Rs 18 billion and principal repayment of Rs 64.4 billion, Punjab debt service estimates for FY 2022-23 is Rs 82.4 billion. As per the budget document made available to the Business Recorder, Punjab’s ratio of debt service to average revenue is 4.6% for FY 2022-23 which is not high and indicates low risk. A number of indicators are used to monitor and control risks associated with the government’s debt risk indicators and act as a guideline to devise future borrowing strategies.
Highlighting risk indicators, financial experts told this scribe that refinancing/ rollover risk refers to the risk of being either unable to raise new debt to repay the portion of existing debt that is maturing or to raise such debt at a much higher cost. Debt maturing in a year, and average time to maturity (ATM) are two indicators used to measure this risk. ATM means the average time-to-retirement of the entire debt stock, they said.
They added that the interest rate risk refers to the exposure of the debt portfolio to changes in the interest rate. The proportion of fixed-rate debt, ATR, and share of debt stock exposed to interest rate re-fixing in one year are the key indicators. Fixed-rate debt is considered less risky as it is not exposed to interest rate fluctuations during its life.
On the other hand, external debt outstanding on 30 June 2022, has an average borrowing cost of 1.57% and average maturity of 8.4 years. External debt of the government is denominated mainly in US dollar (72%), followed by special drawing rights (18%), Japanese Yen (6%), and other currencies (4%).
External debt of the government comprises mainly concessional, long-term, foreign currency-denominated loans obtained from multilateral creditors such as World Bank and Asian Development Bank. These loans are borrowed by the federal government and on-lent to the Punjab government.
Copyright Business Recorder, 2022