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FINANCE Minister Ishaq Dar is soaking up the applause these days, rolling out his narrative of economic improvement since his government came to power wherever and whenever he gets a chance.
To be fair there is some truth to the overwhelming sense of optimism being created by the government. It is evident in the numbers, where the private sector is slowly starting to borrow again for investment and working capital needs, where the financial markets are reposing more confidence in government debt securities, nervously venturing into longer tenors, where exports appear to be growing in dollar terms.
And now we have a mega Eurobond auction, the largest in our history as a matter of fact. No small irony in the fact that the last PML-N government was forced to seek a rescheduling of the country’s Eurobonds as prior action by the International Monetary Fund (IMF) in 1999.
The Fund was stung in those days by criticism that it had acted on behalf of Western creditors in the Asian financial crisis, and wanted to avoid a round two of that whole affair. Of course, it helped that Pakistans Eurobonds at the time were owned largely by Pakistani nationals, meaning few if any large Western creditors were being asked to take a hit.
Memories of those days have receded primarily because we are back on the superpower’s radar. An IMF programme, with two successful reviews and an optimistic outlook on the third one, helps reassure creditors. Backing from the Saudi royal family has a similar effect.
But it appears that the creditors have got a whiff of desperation from the government. The spread that they have demanded on the Eurobond are very large, just over 550 basis points on each tenor. The emerging market average is closer to 350 basis points, and Pakistans last Eurobond was floated at 200 basis points back in 2007.
Of course, Pakistan’s risk shot up sharply afterwards, and the spread crossed 600 basis points later in the same year as the country entered a difficult transition, to say the least, and uncertainty began to cloud the horizon.
Next up: the much-awaited 3G licence auction. The international news agency Reuters claims in a news story that the sealed bids received by the Pakistan Telecommunication Authority (PTA) a few days ago show a “dismal” response. Where the government hoped to raise $2 billion from the final auction set to commence on April 23, the wire service claims it has solid sources who say the amount will not be larger than $850 million.
If this is true it could have consequences for the balance of payments. The third review with the IMF is set for May, and proceeds from the 3G auction will play a key role in helping meet the target for reserves set for the end of the fiscal year, although in IMF documents the projected proceeds from the auction are in fact $1.2bn.
The PTA chairman has strongly denied the contents of the Reuters story, saying that in fact the auction is oversubscribed already. So which is it? Dismal showing or oversubscription? Given the large stakes the auction has for the country and its balance of payments, and relations with creditors, this cannot be considered a minor spat between a supposedly reputable news service and the government.
To me the Reuters story’s biggest weakness is that it has no named source. In fact, it appears that the story has only one source, with “industry executives” mentioned early on, but no indication on what exactly they have told the news organisation. This is very problematic.
Telecom executives that I spoke with routinely downplayed the 3G auction and its importance, with one of them even telling me that he wasn’t sure whether it was suitable technology for Pakistan. It was obvious they were trying to push down the anticipated price of the licence by talking dismissively about the technology, then about its commercial prospects in Pakistan, then about the government’s expectations of the amounts to be realised through the auction.
In the end they all submitted bids, except for the one player who is already looking to exit the field. That’s what makes me sceptical, and I’ve found plenty of reason over the years to be doubtful about what those with stakes in the game tell me ‘on background’. With a built-in incentive to demotivate all expectations surrounding the auction, telecom executives in fact make for a lousy source when running with a story with implications as large as this one.
But in any case, here’s hoping the government’s winning streak doesn’t end soon, because after all, we’ll all be better off with that technology rather than without.
The writer is a business journalist and 2013-2014 Pakistan Scholar at the Woodrow Wilson Centre, Washington D.C.
Twitter: @khurramhusain
