ANOTHER successful bond flotation has had the government patting itself on the back. The rate of return is much lower than domestic debt, even 50 basis points lower than the five-year Eurobond floated in April we are told.

The oversubscription to the offer, enabling the government to lift twice as much as it originally sought to, is a vote of confidence in the leadership of Nawaz Sharif, says the finance minister.

Subscription to the bond from many countries shows this confidence is global, and the quality of investors showing an interest is an indication of the depth of this confidence, we are informed. Pakistan will save on its domestic debt service bill an amount totalling almost Rs5bn, because the interest on the Sukkuk is lower than on domestic Treasury bills.

Also read: Sukuk yields $1bn in international bond market

The lack of interest in the OGDCL flotation has been compensated for in this transaction, and our plan to generate foreign exchange as per IMF requirements is back on track.

All around, the government appears pleased with itself, with the prime minister even taking time out from his engagements at the Saarc summit in Kathmandu to call the finance minister and congratulate him.

All this may be good news but it is worth keeping the celebrations short for now. In fact, let’s take a reality check and note that on the same day as the news of the bond flotation arrived in Islamabad, the IPPs sent a notice of default to the government on Rs42bn receivables, the clearest indication that things in the power sector have returned to where they were when the government first came to power.

Also note the words of the OICCI leadership, which was in Islamabad the same day, flagging their concerns about the lack of governance and the general sense of drift in the country as a major stumbling block to further investment.

Meanwhile in the Senate, questions continued to arise over the inordinate delay in the appointment of heads of major regulatory bodies. Raising debt from abroad to hike up reserves is a very short-term measure, even if the response is good.

The government is entitled to feel positive about how the Sukkuk bond flotation has gone, but it must get its feet back on the ground quickly and return to the bread and butter issues that are continuing to depress investment and confidence in the economy. Debt-driven inflows are only good news until the bill becomes due.

Published in Dawn, November 28th, 2014