Bond sale


Many are interpreting Pakistan’s purchases of fresh debt of $1bn through a tap sale of its three-part dollar-denominated Eurobond, which had fetched $2.5bn in March, at a slightly lower price than the indicative rate for the five-, 10- and 30-year tenors, as a sign of international investors’ increasing trust in the country’s growth story. How correct is their observation? Indeed, investors have given Pakistan some discount in terms of lower rates. But the fact is that even the ‘discounted’ interest rate is still considerably above what they would earn if they had bought US Treasury bills. The spread of around 5pc is too attractive for international investors to ignore in spite of the potential risks around the nation’s current account from the projected decline in workers’ remittances and the rising global commodity markets, the continuing Covid-19 pandemic on the back of a slow vaccination drive, and, last but not least, the possibility of the IMF distancing itself from Islamabad because of a reappraisal of targets in the budget. The same is the case with the Roshan Digital Accounts initiative of the central bank, which offers a hefty 7pc profit to overseas Pakistanis for keeping their savings in Pakistani banks. Who wouldn’t want to bring their money here if they are given this opportunity to earn far more than they could expect to on their savings in their countries of residence?
The fact is that Pakistan could have done more to take advantage of the international low interest rate environment while lifting debt from the international markets — both in March and this week. On top of that, it has locked its long-term debt on 10- and 30-year papers at a very high price while it should have gone for shorter-term notes of up to five-year tenors only. Perhaps the policymakers did not have much choice at a time when Pakistan’s external financing needs are growing. The current account has been posting a deficit for the last seven months as the trade gap is widening on increasing imports and rising global commodity prices. The international oil prices hit a multi-year high recently and we have to wait and see how the market will behave going forward. With the government’s external financing target through commercial sources during the present fiscal estimated to be around $5.5bn and the IMF programme on hold, there was probably little choice but to offer a higher spread to woo global interest.