Pakistan’s dollar bonds rise after striking IMF bailout

KARACHI: Pakistan’s dollar bonds rallied after the country reached a staff-level agreement with the International Monetary Fund (IMF) for a $3 billion loan programme, reducing the risk of a sovereign default.

The Pakistan and IMF deal received a significant response from foreign investors. The price of Pakistan's $1 billion Eurobond, which matures in April 2024, is currently close to 71 cents, while the price of its $500 million Eurobond, which matures in September 2025, is nearly 55 cents, said Mohammed Sohail, the CEO of Topline Securities on Twitter on Friday.

“These prices are up 70-80 percent since October 2022,” Sohail added.

A new Standby Arrangement (SBA), a 9-month IMF short-term programme, has been signed by Pakistan. The Washington-based lender stated in a June 29 statement on its website that the staff-level agreement is subject to approval by the IMF Executive Board, with its consideration expected by mid-July. The nine-month deal is separate from the IMF-supported programme that ended on June 30 and will help in the country’s transition to a newly elected government later this year.

Pakistan previously entered into IMF SBAs in 2008 and 2000. The SBA aims to address recent external shocks, preserve macroeconomic stability, and create room for social and development spending. Key recommendations include greater fiscal discipline, a market-determined exchange rate, and progress on reforms in the energy sector to promote climate resilience and improve the business climate.

Pakistan’s Eurobonds rally will continue especially in short duration bonds, according to analysts.

The signing of the SBA between Pakistan and the IMF has had a positive impact on the international Pakistan bonds market, said Arif Habib Limited in a client note.

Following the news of the agreement, the market sentiment towards Pakistan's bonds has improved, leading to a favourable reaction among international investors, it added.

To highlight, over the past week, there has been a significant rally in Pakistan’s Eurobond market, leading to a decline in yields across all bonds. This decline in yields can be attributed to the market’s anticipation of a breakthrough with the IMF. Investors have been anticipating positive developments in the ongoing negotiations with the Fund, which is reflected in the weak-on-weak change in bond yields.

“Yields have experienced a decline ranging from 4 percent to 42 percent, with the highest decline seen in the nearest maturity bond (April 2024),” it said.

“The significant upward movement in bond prices demonstrates growing optimism among investors regarding Pakistan’s ability to address its economic challenges and implement necessary reforms under the IMF-supported programme,” it noted.

“While the signing of the SBA has generated positive momentum, ongoing developments, and prevailing market conditions will continue to impact bond prices in the future.”