LAHORE: With the five-year international sukuk of $1 billion maturing on Oct 13, the government is yet to decide the timing for the issuance of new dollar-denominated Shariah-compliant papers or Eurobonds to raise fresh debt.

The government plans to purchase a total of $3.5bn debt through international bonds during the current fiscal year. Of that amount it already lifted $1bn in July through a tap issue of its three-tranche Eurobond, which was floated in March to fetch $2.5bn. The issue was oversubscribed, with Pakistan accepting $300m for five-year note at 5.875pc, $400m for 10-year bond at 7.125pc and $300m for 30-year paper at 8.450pc.

Five-year international sukuk of $1bn maturing on 13th

“We will definitely sell the planned international bonds. But we have not decided when we want to do this,” Mohammad Umar Zahid, Director Debt at the federal finance ministry’s Debt Policy Coordination Office, told Dawn from Islamabad by telephone.

Pakistan’s external financing needs are growing with pressures building on the current account and the rupee because of fast widening trade imbalance on the back of rapidly growing imports for meeting domestic demand for raw materials, capital goods, energy and food. Though both the government and the central bank have taken some measures to curb imports, analysts argue that Islamabad will need more foreign debt financing than it has planned for the fiscal year to meet its foreign repayment obligations, protect existing foreign exchange reserves and support the home currency owing to slow increase in exports and stagnating remittances.

However, the suspension of the IMF programme since March this year over differences between the government and the global lender on Islamabad’s pursuit of expansive fiscal and monetary policies to push growth, worries on insecurity spillovers from Afghanistan controlled by the Taliban, the deteriorating balance of payments position, and the country’s not-so-cozy relationships with Washington is believed to have made the situation tough for Pakistan to issue new debt.

In view of the tough situation and not-so-encouraging mood of global fund managers, Wapda has already delayed its plans to lift $500m in debt from international market through another Green Bond issue until next fiscal year. Wapda had mopped up an equivalent amount of loans through the first Green Bond issuance in May.

“The successful sale of new Eurobond/sukuk debt will depend on how the upcoming talks on resumption of the IMF programme progress. If the government is able to strike the deal with the lender, it will become easier for it to tap the international market in the next few months. If the negotiations linger we may have to wait,” Fahad Rauf, head of research at Ismail Iqbal Securities told Dawn by telephone from Karachi.

Analysts also agree that even if the government successfully strikes a deal with the IMF, it will have to pay a higher price on its fresh bond issue to attract the investors because of the US monetary tightening, Afghan situation and pressures on Pakistan’s current account. “I think that we will have to pay 50bps-100bps more in interest rates over and above the price paid on July debt even if we have the IMF on our side and the investors choose to ignore the Afghan situation,” Fahad argued.

The Eurobonds/sukuk debt of $7.8bn constituted 9pc of Pakistan’s total external loans of $86.4bn at the end FY21 as around 48pc came from multilateral loans, 30pc from bilateral loans and 13pc from commercial loans. The report said the country’s $8.8bn of dollarbonds have now fallen by about 4pc since mid-June.

Published in Dawn, October 2nd, 2021