Govt. settles more foreign loans indicating tilt towards domestic borrowings

• Foreign financing of budget up to Oct. 2020 records a net repayment of Rs.352.2bn
• Rupee value of total foreign debt stock fell to Rs.6,346.7bn by Oct., from Rs.6,402.4bn in Jan. 2020

The government settled more foreign loans in 2020 in comparison to what it borrowed from foreign sources, indicating its tilt towards domestic borrowing, as the interest rates remain at record low levels.

According to the latest data available through October, the foreign financing of the budget in 2020 recorded a net repayment of Rs.352.2 billion in the 10 months, up significantly from Rs.171.8 billion through September. 

This is in comparison to the net borrowings of Rs.230.4 billion in 2019 from January through October. 

The Central Bank and the government reiterated that it upends its public debt management between domestic and foreign.

The government has made it explicit that it wants to change its domestic and foreign debt composition from 55:45 in 2020 to 60:40 in 2021, to take advantage of the historically low interest rates.

The Central Bank has been providing a record amount of liquidity to the government since the pandemic broke last year by purchasing Treasury bills and bonds, a deficit financing mechanism known as Modern Monetary Theory. The deficit financing through the Central Bank liquidity or printed money may be possible due to record low interest rates and the muted inflation projections through the medium term. 

Meanwhile, as a result of the domestic tilt towards deficit financing, the rupee debt stock rose significantly from Rs.6,629.1 billion in December 2019 to Rs.8,258.9 billion by end-October. 

The rupee value of the total foreign debt stock as at end-October fell to Rs.6,346.7 billion, from Rs.6,402.4 billion at the beginning of the year. 

All in all, the total outstanding government debt stock at end-October was at Rs.14,605.6 billion, up from Rs.13,031.5 billion at the beginning of the year.