Foreign bonds outperform peers

Rally as political deadlock ends; govt cuts profits on local saving products

KARACHI:

Pakistan’s US dollar-denominated Eurobonds and Sukuks staged an outstanding rally in global markets on Wednesday in the wake of ending the political deadlock over the formation of the government in the centre, outperforming emerging-market peers on the day.

According to the data compiled and reported by JS Global Research, Pakistan’s foreign bonds spiked in the range of 1-6% on the day, overcoming almost all the losses the bonds had recorded post-election upset in Pakistan.

Speaking to The Express Tribune, Chase Securities Director of Research, Yousuf M Farooq, said the chances of the formation of the new political government have increased following a joint press conference on the subject by Pakistan Muslim League – Nawaz (PML-N) and Pakistan People’s Party (PPP) top leadership, ending the two-week-long political crisis in the country.

“The development has given confidence to global investors that Pakistan will manage to approach the International Monetary Fund (IMF) on time instead of getting delayed. This will ensure the nation repays the maturing foreign debt on time, going forward,” he said. To recall, Pakistan is to make a major debt repayment worth $1 billion against maturing a 10-year Eurobond two months later in mid-April 2024.

According to JS Global, Pakistan’s $300 million bond maturing in 2036 gained 6% in a day to 76.21 cents on the day, followed by the notes maturing in 2051 and 2031, which surged 5% each. The bonds maturing in 2026, 2027, and 2029 each increased by 4% on a day-to-day basis. The 2025 bond rose 2%. The bond worth $1 billion, maturing in April 2024, improved by 1%, nearing a record high at 98.40 cents on the day.

Global media outlet Bloomberg reported during the day that the notes maturing in 2031 climbed 3.6 cents to 68.2 cents on the dollar, nearly wiping out losses that followed the February 8 election. Other bonds maturing in 2027, 2029, 2051, 2026, and 2025 all advanced by similar margins. “Pakistan’s securities beat emerging-market peers on the day,” it reported.

Earlier, global rating agencies including Moody’s and Fitch Ratings said Pakistan approaching the IMF for the new loan programme, after the ongoing one worth $3 billion ends in March-April 2024, has become highly uncertain in the wake of the then high political crisis over making the next government. Goldman Sachs, the global investment bank, however, had expressed hope that the political crisis would end soon and enable the nation to approach the IMF almost on time.

Farooq further said that the political landscape has drastically changed over the past 24 hours. “Yesterday (Tuesday) there was high political uncertainty over the government formation. And today, the uncertainty has shifted into certainty.”

Read Political instability can mar IMF programme: Fitch

The new government is to work on a variety of economic issues in addition to securing an IMF loan programme. The other tough issues are increasing the tax-to-GDP ratio by increasing the number of taxpayers and rising collection of revenue in taxes by bringing new taxpayers into the tax net.

There is very limited fiscal space left with the government to do development work and support economic activities in the country. The increase in tax collection is a must. Moreover, the new government has to play its due role in controlling the stubborn inflation reading. The latest increase in gas prices in February will keep inflation reading elevated near and around 24% in February, he said.

The expectations are that the inflation rate will start coming down from March onwards. The new government also needs to play smart on the external economy. It needs to keep the current account deficit moderate and at the same time increase economic growth to create the required job opportunities in the country, he said.

NSS cuts rate

Topline Securities reported the government cut profit rates by 36-72 basis points on rupee-denominated local national saving products with effect from Wednesday (Feb 21).

The data suggest that the rate of return was cut by 72 basis points to 15.36% on each of the three bonds including Pensioners Benefit Account, Behbood Saving Certificate, and Shuhada Family Welfare Account. The profit rate reduced by 58 basis points to 19.76% on Short-Term Savings Certificates. The rate slashed by 55 basis points to 13.67% on Defence Savings Certificate.

Special Saving Certificate’s profit declined by 40 basis points to 15.60%. The rate on Regular Income Certificate dropped by 36 basis points to 14.64%.

The rates on Saving Account Rate, Sarwa Islamic Term Account, and Sarwa Islamic Saving Account remained unchanged at 20.50%, 18.54%, and 20.50%, respectively.

Chase Securities’ expert Farooq further said the government reinvests the investor money into Pakistan Investment Bonds (PIBs), while the rate of return on the bonds has gone down notably in recent times.

Accordingly, the latest cut in the rate of profits on the saving products is made in line with the reduction in return on PIBs.

Published in The Express Tribune, February 22^nd, 2024.

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