Of bond issuances & debt affordability
Pakistan is already under a net external debt of $65 billion, which will increase
Pakistan is already under a net external debt of $65 billion, which will increase. STOCK IMAGE
It is amazing how the same set of events is presented in contrasting ways with the change stemming from who is narrating the story. For the PML-N, the narrative on Pakistan’s international bond issuances is all about the country’s ability to tap international markets, ‘raise’ billions of dollars and increase foreign exchange reserves. It will obviously look at the positives, being the political party running the government. The opposition, on the other hand, will look at every step the government takes with critical eyes. It has this job by virtue of sitting on the other side of parliament. When Pakistan floated the Eurobond in September, the government boasted of being able to raise money, which, it said, showed the confidence of investors. The opposition countered it by saying that the bond-float was at a high interest rate and could have been cheaper.
Recently, a report of the Moody’s Investors Service sheds light on the issue as well, highlighting that the country’s debt affordability has weakened after it tapped the bonds market. Pakistan is already under a net external debt of $65 billion, which will increase — according to IMF projections — to over $74 billion by the time the PML-N’s five-year term ends. The PML-N isn’t too concerned about this since, it thinks, that is a headache for the future. The question arises as to why Pakistan couldn’t hold out for concessional financing and had to be pushed towards the bonds market. The answer lies in the country’s inability to implement reforms multilateral donors had been hoping to see. The low tax base has lowered the country’s fiscal strength and weak institutions have done nothing but cripple the economy. Barring the spectrum auction and sale of assets in profit-making entities, the government has hit a roadblock in its efforts to bring in debt-free dollars. Exports have slid and the rupee devaluation will only make imports expensive, which the business sector would then cite as another reason for the increased cost of production. The government can dismiss the opposition’s criticism and it can even ignore the media-bashing on the issue. But when an international credit ratings agency publishes a report, it means that the finance minister has some thinking to do. We all know how much he loves to cite reports that project an improved image of Pakistan. Maybe he should also start paying heed to those that caution the country’s finance managers.
Published in The Express Tribune, November 10th, 2015.
Recently, a report of the Moody’s Investors Service sheds light on the issue as well, highlighting that the country’s debt affordability has weakened after it tapped the bonds market. Pakistan is already under a net external debt of $65 billion, which will increase — according to IMF projections — to over $74 billion by the time the PML-N’s five-year term ends. The PML-N isn’t too concerned about this since, it thinks, that is a headache for the future. The question arises as to why Pakistan couldn’t hold out for concessional financing and had to be pushed towards the bonds market. The answer lies in the country’s inability to implement reforms multilateral donors had been hoping to see. The low tax base has lowered the country’s fiscal strength and weak institutions have done nothing but cripple the economy. Barring the spectrum auction and sale of assets in profit-making entities, the government has hit a roadblock in its efforts to bring in debt-free dollars. Exports have slid and the rupee devaluation will only make imports expensive, which the business sector would then cite as another reason for the increased cost of production. The government can dismiss the opposition’s criticism and it can even ignore the media-bashing on the issue. But when an international credit ratings agency publishes a report, it means that the finance minister has some thinking to do. We all know how much he loves to cite reports that project an improved image of Pakistan. Maybe he should also start paying heed to those that caution the country’s finance managers.
Published in The Express Tribune, November 10th, 2015.