EXERCISES 22-23: Punjab Debt Service Estimates Rs 82.4 Billion – Business & Finance
LAHORE: With an interest payment of Rs 18 billion and a principal repayment of Rs 64.4 billion, Punjab’s debt service estimate for the financial year 2022-23 is Rs 82.4 billion . According to the budget document made available to the Business Recorder, Punjab’s debt service to average income ratio is 4.6% for the financial year 2022-23, which is not high and indicates low risk. . A number of indicators are used to monitor and control the risks associated with government debt risk indicators and serve as guidelines for designing future borrowing strategies.
Highlighting risk indicators, financial experts told this scribe that rollover/refinance risk refers to the risk of being unable to raise new debt to repay the portion of existing debt that comes due or to raise a such debt at a much higher cost. The debt maturity in one year and the average time to maturity (ATM) are two indicators used to measure this risk. ATM stands for the average repayment term of all outstanding debt, they said.
They added that interest rate risk refers to the exposure of the debt portfolio to changes in interest rates. The proportion of fixed-rate debt, the ATR, and the share of outstanding debt exposed to interest rate refixing within one year are the key indicators. Fixed rate debt is considered less risky because it is not exposed to interest rate fluctuations during its life.
On the other hand, the outstanding external debt as of June 30, 2022, has an average borrowing cost of 1.57% and an average maturity of 8.4 years. The government’s external debt is denominated mainly in US dollars (72%), followed by special drawing rights (18%), Japanese yen (6%) and other currencies (4%).
The government’s external debt mainly comprises long-term concessional loans denominated in foreign currencies obtained from multilateral creditors such as the World Bank and the Asian Development Bank. These loans are borrowed by the federal government and on-lent to the government of Punjab.
Copyright Business Recorder, 2022