Citi expects Pakistan to strike new $8bn IMF deal by end-July

LONDON: Wall Street Bank Citi expects Pakistan to reach an agreement with the International Monetary Fund for a new four year of up to $8 billion program by end-July, and recommends going long on the country’s 2027 international bond.

Pakistan last month completed a short-term $3 billion program, which helped stave off sovereign default, but the government of Prime Minister Shehbaz Sharif has stressed the need for a fresh, longer term program.

“While longer-term challenges pertain, we see several positive catalysts supporting the Eurobonds,” Nikola Apostolov at Citi wrote in a note to clients.“First, a larger and longer IMF EFF (Extended Fund Facility) program could be finalized by July – possibly a $7-8 billion 4-year program and secondly and a possible inflow of Saudi investments,” Apostolov said after a team from Citi visited Pakistan and met policymakers, including Finance Minister Muhammad Aurangzeb.

An IMF mission is expected to visit Pakistan this month to discuss the financial year 2025 budget, policies, and reforms under a potential new program, according to the Fund.Citi said it expected Pakistan’s international 2027 bond to offer a sweet spot to investors with sufficient liquidity and large upside as risks of default dissipate further.

The 2027 maturity trades at 87.292 cents in the dollar, according to Tradeweb data.The country’s shorter-dated bonds — maturing 2025 and 2026 — are trading at 91-96 cents following a sharp rally since late last year. Pakistan’s international bonds had sunken to as little as mid-20 cents in the dollar in 2022.

Last month, the central bank made a scheduled payment of $1 billion in Eurobonds. The bond, launched in 2014, matured at the end of April. Pakistan's history of timely Eurobond repayments, including a $1 billion early repayment, has been highlighted as a testament to its fiscal management, even amid previous foreign exchange crises, analysts said.

The success in managing these repayments has been attributed in part to securing a $3 billion loan from the International Monetary Fund (IMF) in June 2023, which played a pivotal role in stabilizing the economy. The central bank has repeatedly assured that Pakistan has fully arranged for its debt repayments for the fiscal year 2023-24.