KARACHI: A significant improvement in the external account has brightened Pakistan’s chances of reentering the international capital market soon as the 10-year benchmark bond yields fell to a three-year low in single digits on Feb 21.

However, the government did not launch more bonds to raise dollars from the international market despite this encouraging development, said market sources.

“The yield on Pakistan’s Eurobonds has dropped significantly from over 50 per cent to 9pc, marking a three-year low,” said a research report of Topline Securities.

The yield on 10-year bonds in June 2023 was 61.4pc as all international rating agencies downgraded Pakistan in 2023 as the country was about to default. That was the time when the country was desperately looking for help to avoid a default-like situation.

Return on 10-year bonds falls to 9pc from 50pc

Although the country’s ratings have not changed, some indicators related to the external account have improved. Financial experts see the three-year low yield as a good sign for the economy but not enough for the country to reenter the bond market.

Finance Minister Mohammad Aurangzeb stated the country would launch new bonds once the rating is upgraded to a single ‘B’ category.

The minister had been struggling to win support from the rating agencies in his recent visit to the United States to get an upgrade. The minister had productive discussions with S&P, Fitch, and Moody’s and was hopeful that Pakistan would get a ‘B’ rating soon.

With yields now in single digits, there’s a likelihood of an upgrade in Pakistan’s credit rating soon, said Top­line Securities Ltd Chief Executive Mohammed Sohail.

This shift is primarily driven by the IMF-led economic stabilisation policies, which have helped pull the country back from the brink of default. Such an upgrade would open the door for Pakistan to borrow from both commercial and international debt markets at favourable rates, lending badly needed support to its low foreign reserves.

Experts said the external front had seen the most significant improvement as the State Bank’s reserves now exceeded $11.2bn, remittances were likely to be nearly $35bn by the end of FY25, FDI had risen by 56pc during the first seven months of the current fiscal year, and the current account was $682m in surplus.

The satisfactory picture on the current account and foreign exchange front has led to stability in the exch­a­n­­ge rate, which is a major attraction for foreign investors.

A working paper of the State Bank reviewed the situation related to the rise and fall of bond yields. The yields on Pakistani bonds have skyrocketed since April 2022.

The paper argues that factors like political instability, fears of soaring inflation, the inadequacy of forex reserves, downgrading of bond ratings, and exchange rate volatility have recently determined returns on Pakistani bonds.

Pakistan could not launch the Panda bond despite a favourable Chinese market. The government had set a target of launching $2bn in Eurobonds in 2024-25.The finance minister said the government has plans to raise foreign financing through Eurobonds in 2025-26.

Published in Dawn, February 27th, 2025