Eurobonds skyrocket on IMF talks

Investor confidence peaks as new govt seeks financial, economic reforms

KARACHI:

Pakistan’s US dollar-denominated Eurobonds hit a record high price in the global market following an informal invitation from the newly elected government of Prime Minister Shehbaz Sharif to the International Monetary Fund (IMF) for talks on the last loan tranche of $1.1 billion and a new loan programme.

The development spurred global investors, encouraging them to take new positions in rising foreign bonds on the belief that the nation would successfully meet all future foreign debt repayments, including the $1 billion Eurobond maturing in April 2024.

According to JS Global Research, the 2024 Eurobond reached a new record high price of 99.36 cents each, followed by the 2025 notes soaring to a record high of 90.06 cents each.

The bonds had previously dropped by around 5% due to inconclusive general election results held on February 8 in the country. Prior to securing the current $3 billion loan programme ending in March-April 2024, they were trading at less than 50 cents.

The research house reported that Pakistani foreign bonds, along with others, surged by up to 7% in the week ending Tuesday, marking an outstanding rally amid the formation of the Pakistan Muslim League-Nawaz (PML-N) led coalition government in the centre.

A total of eight Pakistani Eurobonds and Sukuk are listed in global debt markets, totalling $7.80 billion. They are set to mature between April 2024 and April 2051.

Data further suggests that the bonds have gained value by up to 10% in the span of a month and by up to 17% in the first two months and one week of 2024.

Speaking to The Express Tribune, Tahir Abbas, Head of Research at Arif Habib Limited, stated that PM Shehbaz Sharif’s decision to initiate talks for a new IMF loan programme has boosted global investor confidence in Pakistan’s economy, attracting them to purchase new lots of the country’s global bonds.

In his inaugural speech after assuming the post of PM on Sunday, Sharif stressed the urgent need for a new loan programme, stating that the government is prepared to take tough decisions in this regard.

Investors took new positions in foreign Eurobonds based on the belief that the nation has a solid plan to repay existing debt. The new package would also provide time for the government to implement necessary economic reforms and boost economic activities and growth.

Abbas noted that the bonds continued to gain traction with political clarity in the country, attracting extended buying since the PML-N and Pakistan Peoples’ Party (PPP) formed a coalition government in the centre.

Subsequently, the election for the national assembly’s speaker and deputy speaker, along with the poll for the prime minister’s post, paved the way for the coalition government to make tough economic decisions to navigate the economy out of crisis.

Abbas projected that the size of the IMF’s new loan programme may vary between $5-8 billion and could span a period of two to three years.

He added that the caretaker government had made significant improvements in economic indicators such as inflation and the current account deficit, which could facilitate Pakistan in securing the new loan package on favourable terms.

Earlier in late January 2024, State Bank of Pakistan’s (SBP) Governor, Jameel Ahmad, remarked that economic indicators had improved significantly, providing a conducive environment for negotiating a new loan programme with the IMF.

The upcoming political government is expected to secure a new programme as the current $3 billion program is set to conclude in March 2024.

Ahmad noted that foreign exchange reserves had increased to $8.3 billion in January from $4 billion six to seven months earlier in June 2023. The current account deficit remained low at 0.7% of GDP (or $800 million), compared to significantly higher levels last year. The inflation rate is expected to sharply decrease in the second half (Jan-Jun) of the current fiscal year 2023-24. The current account deficit is estimated to remain contained at 0.5-1.5% of GDP in FY24. Export earnings and workers’ remittances are on the rise, and the primary fiscal deficit is improving.

Abbas further stated that the new IMF loan programme would create fiscal space for the government to ramp up economic activities.

The new programme may require the government to take measures to increase the number of taxpayers, enhance revenue collection through taxes, sell off loss-making state-owned entities, and initiate reforms in the energy sector to make power and gas affordable for households and businesses.

Published in The Express Tribune, March 6^th, 2024.

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