Global investors’ confidence in Pakistan rises

Country’s risk premium falls notably, Eurobond prices increase

KARACHI:

Pakistan has won back confidence of global investors as the country risk premium fell significantly from the peak of over 14% in June while its dollar-denominated Eurobond prices rose notably.

Topline Securities CEO Mohammed Sohail said on social media platform X “Pakistan’s country risk premium has fallen significantly from its peak of 14.13% on June 27, 2023 to the current level of 3.35%. This shows building investor confidence in Pakistan post-IMF standby arrangement (SBA).”

The reduction in risk premium signals the revival of global investors’ trust in Pakistan’s equity and debt instruments from the earlier negative stance.

On the other hand, prices of Pakistan’s Eurobonds worth $1 billion maturing in April 2024 surged to 94.08 cents from near 50 cents in June.

Prices of other Eurobonds and Sukuk also maintained their uptrend since the IMF awarded a $3 billion loan programme at the end of June 2023.

Talking to The Express Tribune, Pak-Kuwait Investment Company Head of Research Samiullah Tariq said the fall in risk premium and the improvement in Eurobond prices both suggested that there was no risk of default by Pakistan on foreign debt repayment as compared to high default fears before the SBA.

The government’s decision to let foreign investors in debt and equity markets move their funds in and out of Pakistan despite default risks, has helped revive their confidence. 

Read: Pakistan’s Eurobonds jump to multi-year highs

Pakistan has also recently lifted restrictions on foreign companies operating in the country on fully repatriating profits and dividends to their headquarters abroad after improvement in the country’s foreign exchange reserves.

Such companies freely repatriated profits in October, which came after an unannounced moratorium over the past about 18 months.

Though the foreign exchange reserves are still low and financing from global creditors and international investors is not materialising, Tariq noted that the IMF executive board’s approval of the release of second loan tranche of $700 million would encourage other global creditors to unlock the promised funding.

He recalled that the UAE had assured the IMF about two weeks ago that it was committed to providing promised funds to Pakistan. In addition, multilateral and bilateral creditors have pledged around $10 billion in flood relief in Geneva in January 2023.

Published in The Express Tribune, November 24^th, 2023.

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