Yield on sovereign bond continues to rise

Measure of risk rose by 14.8 basis points to reach 10.76%. Affects investor sentiments.

KARACHI: The yield on Pakistan’s Eurobond has continued to rise as the perceived risk associated with the country’s sovereign debt obligations plagued sentiments of investors. The measure of risk rose by another 14.8 basis points to reach 10.76 per cent on Monday.

The bond, which will reach maturity in 2016, was yielding 9.99 per cent on January 7. The successive increases in yield have followed the government’s quick withdrawal of a nine per cent increase in fuel prices that was announced at the end of December. “Government’s recent decisions seem to have put economic reforms on the back burner,” commented InvestCap Head of Research Khurram Shehzad.

“Local fuel prices have been rolled back at a time when it appears that international oil prices will remain high and the implementation of tax reforms has also been shelved for now,” he added. Local analysts are concerned that the deferment of reformed general sales tax will not go down well with the International Monetary Fund (IMF). Pakistan entered into a stand-by arrangement with the IMF in November 2008, under which the country was to receive loans worth $11.3 billion.

The international financial institution has held back payments worth $3.4 billion since last May.

Experts fear that further delays in improving revenue collection by the government could jeopardise the country’s chances of receiving additional funds.

Published in The Express Tribune, January 18^th, 2011.