Pakistan’s Eurobond price jumped 10 percent after timely coupon payment, IMF support

KARACHI: Pakistan's sovereign bond that matures in April 2024 has surged 10 percent in the last few days after the country made a timely coupon payment, a brokerage firm said on Wednesday, as an International Monetary Fund (IMF) loan helped recede default risks for the cash-strapped country.

"Pakistan Eurobond that matures in April 2024 is rallying again," brokerage Topline Securities said in a note. “It is up 10 percent in the last few days after the timely coupon payment. In the last one-year, bond price has rallied 130 percent from 38 cents to 89 cents."

The brokerage termed the IMF's $3 billion standby arrangement (SBA) and the government's policies as the main drivers of the recovery. "Thanks to IMF short-term term loan in June and government policies, all markets (bond, stock, currency) recovering strongly and investor confidence is improving," it added.

Pakistan is currently trying to find its way back to economic stability under a caretaker administration that took over in August after the parliament completed its five years term.

The country secured a $3 billion loan programme from the IMF in July , which was crucial in averting a sovereign debt default. The IMF disbursed $1.2 billion as the first tranche of the SBA, while another $710 million is expected to be released after the first review of the programme in November.

The IMF team will visit Pakistan in early November to assess the country's economic and financial performance. Analysts say Pakistan has largely met the fiscal and monetary targets set by the global lender, such as reducing its budget deficit, increasing its tax revenue, tightening its monetary policy and building up its foreign exchange reserves.

The central bank governor Jameel Ahmad informed the key foreign investors on the sidelines of the IMF and World Bank meetings in Morocco last week that the country’s foreign exchange buffers are improving with both build-up in reserves and reduction in forward foreign exchange liabilities.

He said since January 2023, SBP’s foreign exchange reserves improved from a low of $3.1 billion to $7.6 billion as of end-September 2023. The reserves build-up was largely supported by non-debt-creating inflows amid favorable market conditions.

Ahmad said the SBP’s forward foreign exchange liabilities have declined and the forward book target of $4.2 billion for end-September 2023 agreed with the IMF has already been met by a wide margin. The SBP is also very comfortably placed to meet the other end-September IMF targets, including Net International Reserves (NIR) and Net Domestic Assets (NDA), he added.

"The IMF loan review in November and the upcoming general elections, due by January 2024, will determine the direction of markets going forward," Topline Securities said.