PAKISTAN has been on a ‘successful’ borrowing binge of recent. It has raised money from the IMF, multilateral creditors, the Islamic Development Bank, a consortium of international commercial banks, and now from global bond markets.

Over and above this borrowing, amounting to some $10.5 billion in 10 months, it has also raised funds through auction of 3G and 4G spectrum licences, and received a mysterious Saudi ‘gift’. While the non-debt creating flows can be regarded as a positive development, the finance minister has somewhat bizarrely ‘congratulated’ the nation on the external debt he has managed to raise in such a short space of time.

This mindset of celebrating each new round of international borrowing is not new, of course. It goes back to Pakistan’s early days, and was last on full display at the height of Gen Musharraf’s failed economic policies. That it is alive and kicking almost 10 years later — and that too under those who roundly criticised the Musharraf-Shaukat Aziz economic ‘model’ — shows how deep-rooted and durable our misconceptions and delusions are.

The country’s recent foray into the international sovereign bond market is instructive. Pakistan raised $2bn via two Eurobonds of five and 10 years’ maturity. The bond issue was oversubscribed 14 times, leading the finance minister to issue a series of self-congratulatory statements. While doing so, unfortunately, he had no qualms about using a narrative he had rightly described, while in opposition a few short years ago, as false as well as misleading.

The setting was Pakistan’s foray into the international bond markets in 2004, its first after a hiatus of many years. I was part of a team from three global financial institutions associated with the country’s return to the international capital markets. A five-year, benchmark-sized Regulation S/144a issue was oversubscribed by several times. Flush with success, the economic team of Gen Musharraf constructed the following narrative:

• Pakistan had ‘graduated’ from the IMF due to prudent economic policies followed under then-finance minister (and PM-in-waiting) Shaukat Aziz;

• The overwhelming success of the bond issue was a vote of confidence by international investors in Pakistan’s economy;

• Bond investors would be followed in droves by all kinds of other investment into Pakistan, including FDI, because the country was now on the international ‘radar screen’;

• The bond markets would monitor and ‘regulate’ Pakistan’s economic policies — implying that its policies therefore could not be off-track or simply wrong, as they proved to be;

Fast forward 10 years to 2014. The shoe is on the other foot. Senator Ishaq Dar, now the finance minister, has begun speaking from the exact same script — no doubt carefully preserved in the archives for such a day by the mandarins at the Ministry of Finance — that he had ridiculed in 2004!

On both occasions, back in the 2004-2007 period and in the past few months, the international capital markets have been flush with liquidity, and bond as well as equity investors have been pushing the risk envelope to so-called ‘frontier markets’ for higher returns. The Institute of International Finance estimates a flow of $39bn to emerging markets in March of this year alone.

Hence, around the same time as Pakistan was issuing its bonds at a yield of 7.25pc for five years, Zambia launched its second-ever global sovereign bond of $1bn. In fact, according to the Wall Street Journal, Papua New Guinea, Bangladesh, and Bhutan were lined up for their own bond issues right after Pakistan. (Back in 2004, almost right after our bond floatation, first-time issuer Mongolia got an enthusiastic reception from bond investors similar to Pakistan.)

Even Greece, which is still not out of the woods after one of the biggest sovereign credit events in history, raised over $4.1bn at 4.95pc for five years. For international bond investors, more important factors than an emerging market’s supposed economic performance or prospects are: the need to deploy excess liquidity, and the yield offered by a sovereign, especially the pick-up over other assets. A better reflection of how much ‘extra’ yield Pakistan had to offer to attract bids for its bonds is a comparison with other recent issuers; Sri Lanka’s seven-year bond, due 2021, floated two days before Pakistan, offered a yield of 5.7pc, or 155 basis points lower.

Another lesson for policymakers is that ‘praise’ from the IMF for a borrower raising money from the international capital markets should more often than not be interpreted as ‘relief’ — the preferred creditor is more assured that the risk has been transferred to bond holders!

Tailpiece: The inane and self-serving press releases issued after each meeting of the Economic Advisory Council make the body appear like a rubber-stamping forum — forever ‘endorsing the government’s economic policies’ or ‘appreciating the finance minister’ or ‘fully supporting’ something or the other. While the level of discourse and the overall process has been generally wanting so far, the truth is that the EAC has raised important issues with the government’s economic team. Two contentious issues that have been brought up recently for discussion include the ECC’s approval of two Rental Power Projects (RPPs), and the consigning by the government to the trash can of Nadra’s list of 3.2 million affluent Pakistanis not on the tax register. More on these issues subsequently.

The writer is a former economic adviser to government, and currently heads a macroeconomic consultancy based in Islamabad.