Another year, another Eurobonds road show – only that this year the reception has been far more cynical that the last two bond issues. With Finance Minister Ishaq Dar and his team of financial wizards having returned after promoting another Pakistani government-backed issue of Eurobonds, questions have been raised over the terms of the bond issue and whether there was any financial need for the issue in the first place. Pakistan has offered $500 million worth of 10-year bonds at 8.25 percent yield in the international market. The success, the finance minister would like to tell us, is that these have been twice over subscribed. But this is already far less than the bond issue in April 2014, which aimed to raise $500 million but attracted bids of around $6 billion. The yield offered a year and a half ago was the same, which has led to questions over the government’s claim that Pakistan’s macroeconomic condition has stabilised. The yield being offered is far greater than that of other developing countries, which clearly makes the bonds a favourable investment for external buyers. But for the same reason, it is not the best way to raise money to fill up the financial coffers of the Pakistani government.
Dar has declared our marcoeconomic condition to have stabilised. And the government has left no leaf unturned to promote the better ranking that Moody’s has given for the Pakistani economy. That therein presents a strong case to reduce the yield being offered to subscribers. Moreover, there are further questions to be raised over the timing of the bond offer, with the market only recently having been unstable following the crisis in China and the possibility that the US Federal Reserve might increase interest rates. The finance ministry has claimed that the bond issue was necessary to cover another maturing bond of a similar size issued in 2006, but this merely suggests that more debt is being piled onto the economy without clearing
commercial debts that have been stocked from earlier. What is more confusing is why the government felt it necessary to undertake the bond issue at a time when it is claiming to have $18.5 billion in its foreign reserves. Bond issues tend to come with unfavourable rates compared to those offered by international lenders such as the IMF, which has already extended a gracious loan package for the country. The average yield offered by other developing countries averages around 2.8 percent – far lower than Pakistan’s offering. It seems that the reason for the over-subscription of our bond issue is less about the strength of the economy and has more to do with the handsome terms on offer. Had the finance minister offered a more reasonable rate of return to bond investors, the government’s ability to raise the said money would have been seriously in question. The current government is engaging in too much financial gimmickry without providing enough justification.