Cutting out the middleman

Pakistan's federal government faces persistent challenges in managing its expenditures within its means, placing a heavy reliance on a narrow base of formal sector entities for revenue collection and development funding. While the nation's gross public debt ratio stands at 70 percent, a figure not considered alarmingly high by developing economy standards, a critical problem lies in its concentration. Over the past decade, commercial banks have become the primary holders of the federal government's debt. Of Pakistan's Rs54.5 trillion in domestic debt, marketable instruments account for Rs46.6 trillion. Scheduled banks alone hold Rs36.8 trillion of this amount, representing a substantial 79 percent. This dominance of banks in holding sovereign debt creates an extreme bank-sovereign nexus by global comparisons, according to a World Bank analysis.