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Saturday May 18, 2024

Pakistan repays $1bn in Eurobonds

This bond has rallied by 84 percent so far this year

By Erum Zaidi
April 14, 2024
A foreign currency dealer counts US dollar notes at a currency market in Karachi on July 19, 2022. — AFP
A foreign currency dealer counts US dollar notes at a currency market in Karachi on July 19, 2022. — AFP

KARACHI: The State Bank of Pakistan (SBP) has repaid $1 billion in Eurobonds, it said on Saturday, as the country is seeking a new long-term bailout from the International Monetary Fund (IMF) to help manage its external financing needs and economic recovery.

According to the central bank, it met a dollar bond payment on Friday. The 10-year bond was launched in 2014 and was maturing this month.

“SBP has successfully executed the repayment of US$ 1 billion Pakistan’s International Bond on April 12, 2024 (principal plus interest). The payment was made to the agent bank for onward distribution to the bondholders,” it said in a statement.

This bond has rallied by 84 percent so far this year.

In response to growing worries, the country’s assets came under pressure last year when its foreign exchange reserves dropped below $3 billion in February 2023 due to the delayed IMF programme. This stoked concerns about a possible bond payment default.

But after the cash-strapped country managed to secure a $3 billion IMF stand-by arrangement last summer and elections were held in February 2024, Islamabad is reportedly ready to begin talks with the global lender for a new loan programme.

The investor confidence has increased and contributed to an incredible rally in the nation’s bonds.

Pakistan’s short-term financial prospects are cautiously optimistic. Concerns remain, nevertheless, over its capacity to pay off its long-term debt. The country has to pay back $4.3 billion in external debt in the last quarter of this fiscal year.

“After repayment of 2024 bond, Pakistan’s total outstanding international bonds/Sukuks are $6.8 billion (6.8 percent of public external debt) with the next maturity amounting to $500 million in September 2025,” said Shahid Ali Habib, the CEO at Arif Habib Limited.

“Also Finance Minister Muhammad Aurangzeb mentioned in his recent media interaction that effort will be made to explore opportunities in the Chinese bond market,” Habib added.

The central bank’s foreign exchange reserves have fallen following the latest bond repayment. However, it seems likely that with the $1.1 billion final IMF tranche, which is expected to be released after the global lender’s board meeting later this month, FX reserves will increase to $8 billion. As of 29 March, the SBP had $8.04 billion in foreign reserves. The $3 billion IMF stand-by arrangement ended on Thursday.

According to IMF head Kristalina Georgieva, Pakistan and the IMF are in talks for a possible follow-up programme.

To attend the IMF-World Bank spring meeting in Washington from April 15-20, Finance Minister Aurangzeb is scheduled to depart on Sunday. It is there that he will formally request Pakistan’s 24th long-term IMF bailout package.

Reports state that Pakistan opted to request an augmentation of the IMF’s extended fund facility through climate finance, potentially garnering $6 to $8 billion for the upcoming programme.

In recent weeks, there has been discussion between the two sides over the negotiation of a longer-term bailout that includes the required policy measures to control rising debt payments, build up reserves and rein in deficits.