LAHORE, May 22: The government has finally dropped its plan to rake up debt of around $2 billion before the end of this fiscal year from the global financial markets by floating exchangeable bonds and the global depository receipts (GDRs) of the state-owned National Bank of Pakistan and the partly privatised Habib Bank Limited because of ‘unfavourable’ domestic and international factors and time constraint.

“Well, we’ve put on hold the plan to raise the dollar debt from the international financial markets for an indefinite period,” a senior federal finance ministry official, who asked not to be identified, told Dawn by phone from Islamabad.

He, however, acknowledged that it meant dropping the plan for all practical purposes. “Whether or not we decide to revive our programme to go to the global debt market to raise funds during the next fiscal year is not clear at the moment,” he said.

The official blamed the fast eroding image of Pakistan in the global financial market as a stable economy because of the lingering political uncertainty for ‘deferring’ the plan to raise the debt. Also, he said, the financial crunch in the global markets due to the sub-prime crisis had forced the government to shelve the plan.

“The instability surrounding our domestic political scene has made the global credit ratings agencies like Standard & Poor’s and Moody’s to downgrade their country ratings for Pakistan, pushing the cost of borrowing in the global debt market,” the official said.

In the current scenario, the official said, it was very difficult to attract global investors to invest money in bonds or GDRs offered by Pakistan.

He said the downgrading of Pakistan’s sovereign rating would also affect the flow of foreign investment in the coming months.

Pakistan floated its bonds worth $750 million exactly a year back on May 24. The paper traded at 192 basis points or 1.92 per cent above the benchmark US treasury in the 10-year segment.

“Moreover, it had resulted in huge oversubscription, but we accepted offers to the tune of only $750 million. Now the spread has widened and the same paper is trading at above 570 basis points (5.70 per cent) because of the increased political and economic risks associated with investment in Pakistan and its bills,” argued the official.

The official said the spread stood at 515 basis points or 5.15 per cent before Standard & Poor’s downgraded its country rating for Pakistan a week ago.

He said the idea of floating exchangeable bonds had emerged after the government found it difficult to issue Eurobonds and sovereign bonds to raise dollar debt due to global financial crunch.

The decision to float bonds exchangeable with lucrative Oil & Gas Development Corporation (OGDC) stocks as well as GDRs of the NBP and ‘block’ shares of the HBL was made in order to shore up the country’s dwindling foreign exchange reserves that have dropped to $11.885 billion from all-time high of $16.48 billion on October 31 last year.

The foreign exchange reserves, the financial analysts fear, could hit $10 billion at the end of this financial year on June 30 because of the rising import bill mainly on account of spiking global crude prices.

The falling foreign exchange reserves are also said to be allowing a massive speculative pressure on the rupee, which has already hit the record low of above Rs71 to a dollar in the market.

The State Bank of Pakistan was hoping that the foreign financial inflows to be raised by floating exchangeable bonds and GDRs of the state-owned banks and a private cement company would help its efforts to ease speculative pressure on the rupee and let the currency regain some of the lost ground by the end of this financial year. But it was not to be.