Pakistan’s bond yield spikes to 106%

It points to risk of default amid worsening balance of payments crisis

Salman Siddiqui March 16, 2023
design: mohsin alam


The price of Pakistan’s US dollar-denominated international bond continued to fall for the sixth consecutive working day on Wednesday and its yield spiked 16% to a record high at almost 106% in the global market.

Bond price and its yield move in opposite direction. The latest slump in price and the surge in yield suggest that the risk of default by Pakistan on foreign debt repayment, including payments for maturing global bonds, has soared amid a worsening balance of payments crisis.

Political temperature in Pakistan has shot up and dented the economy. A clash between law enforcement agencies and former prime minister Imran Khan’s supporters in Lahore entered into a second day over attempts to arrest Khan.

Ten-year sovereign bond, called Pakistan Government International Bond, is worth $1 billion. It will mature on April 15, 2024, meaning the government will return the borrowed money to investors, according to data compiled by local research houses.

Global media outlet Bloomberg reported, “Pakistan’s 2024 bonds fell for a sixth straight day to lead losses among developing nation peers…, as investors weighed clashes between supporters of former prime minister Imran Khan and police.”

The debt due in 2024 was indicated at 46 cents on the dollar, down 5 cents, it said.

Arif Habib Limited reported that the yield surged 16.1% in a day to 105.8% on Wednesday. Yields on other Pakistan’s international bonds also moved up as their prices dropped in recent days.

Talking to The Express Tribune, Pak-Kuwait Investment Company Head of Research Samiullah Tariq said “bond price and yield will remain volatile till the International Monetary Fund (IMF) resumes its $6.5 billion loan programme.”

Prime Minister Shehbaz Sharif has said that his government will achieve a staff-level agreement with the IMF on March 16.

Pakistan will receive next loan tranche of $1.1 billion after the revival of the programme. Other multilateral and bilateral creditors will also unlock a couple of billion dollars in financing.

“The release of financing will signal bond investors that Pakistan’s balance of payments position has improved and it will be able to pay the maturing debt on time,” he said.

Earlier in November-December 2022, the yield had spiked to over 145% for the five-year bond worth $1 billion, which was repaid successfully ahead of its maturity on December 5, 2022.

Finance Minister Ishaq Dar and State Bank of Pakistan (SBP) Governor Jameel Ahmad have reiterated that Pakistan will not default. It will continue to pay all the maturing debt on time as the required financing has been arranged for the current fiscal year.

Tariq said that heightened political uncertainty had significantly contributed to the reduction in bond price. “Political confrontation mainly hinders governments from formulating economic policies and results in the weakening of economic indicators.”

Earlier this week, the Bank of America highlighted the possibility of Pakistan’s default on international debt repayment in case the resumption of IMF programme was delayed.

Global credit rating agencies including Moody’s Investors Service and Fitch Ratings have recently downgraded Pakistan’s foreign and local credit ratings to levels that indicate the risk of default has peaked with little chance of recovery.

SBP governor said the other day that Pakistan was to repay only $3 billion in foreign debt in the current fiscal year, out of the due amount of $7 billion. He anticipated that the remaining $4 billion would be rolled over by the bilateral creditors.

Other international US dollar-denominated bonds of Pakistan will mature between September 2025 and April 2051. The value of all global bonds of Pakistan stands at $7.8 billion.

Published in The Express Tribune, March 16th, 2023.

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