WASHINGTON: The International Monetary Fund (IMF) has welcomed Pakistan’s successful launch of $2 billion Eurobond saying it will reduce Pakistan’s economic vulnerabilities and showed higher than anticipated investor confidence in the economy.

Speaking to Dawn here at IMF headquarters, the IMF Adviser for Middle East and Central Asia Department and Mission Chief to Pakistan Jeffrey Franks said “bond issue was a success because it showed high investor interest in Pakistan that will help reduce vulnerabilities in the economy” and provide room for fiscal financing and balance of payments financing besides building central bank reserves.

He said road broadly it was good news that Pakistan re-entered the international capital market and raised $2bn for a couple of reasons. As part of medium- to long-term strategy the authorities and IMF were working on, it would be a good sign to help diversify debt and move away from the SBP financing.

He agreed that the interest rate on Pakistan bond was relatively high but it was a positive thing that international investors have significant interest in Pakistan.

“The interest rates of the bond are relatively” high but spreads over US treasury have gone down in recent years and hence when seen in that context the interest rates were not that high as these could have been a year before.

He appreciated the structure of the bond, saying the longer maturity was also a good sign because it reduced the risk. Therefore, a long maturity, high demand for Pakistani papers and a reasonable interest rate shows that international investors have higher interest in Pakistan than earlier expected.

Franks agreed that Pakistan and the IMF were earlier looking at a lower bond size. With better than expected international interest and reasonable offers, the government took advantage of the situation which is a good thing because it would also provide a cushion if Pakistan were to miss some other financing targets like on privatisation or Etisalat proceeds.

The IMF official believed Pakistan’s fiscal financing was now in good shape and on track but that did not mean the government should not take other policy measures. It should continue focusing on reducing SBP borrowing and building up foreign exchange reserves.

On energy sector, the IMF saw the government broadly going ahead with reform process as targeted satisfactorily as it introduced tough decision to increase tariff for the large consumers while protecting the poor which has effectively reduced the cost of producing electricity and the selling price.

Also, the clearance of the circular debt was a step that helped bring in more capacity into use and then taking steps to increase energy supply like starting work on LNG terminal to import natural gas, work on hydroelectric projects for capacity addition were positive developments.

On top of that, there was good interest from the investors towards energy projects which was a positive sign.

Franks expected more foreign inflows next month. For example, he said the World Bank was on track to disburse $1bn programme loans in May this year in addition to project financing followed by first part of the Dasu Hydropower project in few months.

Moreover, the Asian Development Bank was also accelerating project lending to Pakistan with $500 million disbursement in a couple of months.

Responding to a question, Mr Franks agreed that there were administrative and capacity issues in the energy sector and the Fund had asked the government to order audit of the energy sector to see where were these administrative and capacity problems to resolve them and this was going to be a focus of discussions going forward.

He said the level of cost of energy has narrowed due tariff increase but together with this strong administrative effort was required to increase recoveries, improve governance and reduce inefficiencies. He said it should be kept in mind that tariff increase was a short term solution while administrative improvement takes time to take shape and reducing the cost of energy through better energy mix was a process that takes much longer time.

He said the substantial World Bank financing along with substantial reform would be forthcoming very soon and it should be realized that it took many years in Pakistan to get into this energy mess and would take years to get out of it.

On taxation, he agreed that about 12 per cent or so revenue growth was mainly because of about 9 per cent inflation and 3 per cent economic growth which meant 4-4.5 per cent growth in revenue was improvement in tax collection to reach 16-16-5 per cent growth Pakistan had secured this year.