Foreign currency bonds: Improved rating outlook testament to progress, says Dar

Moody’s decision comes in wake of strengthened foreign exchange reserves.

KARACHI:

Finance Minister Ishaq Dar has said the change in Moody’s Investors Service’s outlook on Pakistan’s foreign currency government bond rating from stable to positive is a testament to the economic progress made under the Pakistan Muslim League-Nawaz (PML-N) government.

Speaking at the State Bank of Pakistan (SBP) on Wednesday, Dar said detractors claimed in 2013 that Pakistan would go bankrupt in 2015. Instead of collapsing like the USSR or Yugoslavia, Pakistan is back on the path of economic growth in 2015, said Dar.

The international ratings agency upgraded Pakistan’s dollar bonds rating one notch from stable to positive mainly on the back of the country’s improving macroeconomic indicators, AFP reported earlier in the day.

The financial ratings firm said its decision came in view of Pakistan’s strengthening foreign exchange reserves.

“Moody’s Investors Service has revised the outlook on Pakistan’s foreign currency government bond rating to positive from stable,” the company said in a statement.

Pakistan issued $1 billion in five-year Sukuk bonds – the Islamic version of Eurobonds – in November last year to boost foreign exchange reserves.

In April 2014, the country issued $2 billion worth of Eurobonds in five- and 10-year terms.

Pakistan’s net foreign currency reserves with the SBP reached to $11.2 billion up to March 13, from just $3.2 billion in January 2014.

The International Monetary Fund (IMF) has voiced satisfaction with Pakistan’s progress on reforms required under a $6.6-billion bailout agreed in 2013.

The loan came on condition that Pakistan — which was suffering an energy crisis — would carry out extensive economic reforms, particularly in the energy and taxation sectors.

Moody’s said continued success under the IMF programme would act as “upward triggers to the rating”.

According to economist Khurram Schehzad, the improvement in Pakistan’s ratings by Moody’s is a ‘big positive’ for the country in view of low inflation and better external liquidity and fiscal position alongside a stable political environment.

Islamic finance

Addressing the opening ceremony of proposals on the Establishment of Centre of Excellence for Promotion of Islamic Finance at the central bank, the finance minister said Islamic finance has given the world a viable alternative to the conventional system post-2008 global crisis.

Recalling early achievements in the field of Islamic finance that Pakistani regulators and companies made during the 1980s, Dar said those efforts could not bear fruit because of unfavourable global trends at the time.

But the recent tribulations in the global economic order have changed people’s perception around the world, Dar said. Islamic finance is attracting attention in the western world as well because of its commercial benefits.

He said the government is privy to the problems Islamic banking institutions face with regard to liquidity management. He said a range of Shariah-compliant securities will soon be launched, which will help Islamic banking institutions manage liquidity more effectively.

Speaking on the occasion, the SBP governor and deputy governor heaped praise on the finance minister for his commitment towards popularising Islamic banking in Pakistan.

SBP Governor Ashraf Wathra said the asset base of the global Islamic finance industry stood at $1.8 trillion, which is expected to grow to $5 trillion by 2020.

After its re-launch in Pakistan, Wathra said Islamic finance has grown ‘tremendously’ since 2001. Currently, the share of Islamic banking in the overall Islamic banking industry in Pakistan stands at over 10%. It is expected to be over 15% by 2018, he added.

Towards the end of the ceremony, Dar opened the proposals on the Establishment of Centre of Excellence for Promotion of Islamic Finance. The SBP has received eight proposals from leading universities, including IBA and LUMS, to set up the proposed centre of excellence.

The selected educational institute will receive a grant to establish the facility that will train human resources for the expanding Islamic finance industry of Pakistan.

Published in The Express Tribune, March  26^th,  2015.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.