Pakistan plans $1bln bond issue by November

ISLAMABAD: The government has planned a new $1 billion bond offering, mostly likely Islamic sukuk at the end of October or start of November to fund a record high current account deficit and support depleting foreign currency reserves, officials said on Tuesday.

“Preliminary work has just started by the economic managers for the launch of a new international bond within next couple of months,” said a senior official at Finance Division. “It has not yet been fully decided whether we will launch Sukuk or Eurobond this time but the decision has been taken that one of either bonds will be sold out to potential investors keeping in view favorable market rate and interest shown by investors for subscription of the bond.

The country last tested appetite of foreign investors in October 2015 when it raised $1 billion through sukuk issue. The fresh plan will mark the return of the country to the international bond market after a two-year absence.

The official said leading foreign banks are lobbying to get the job for Eurobond or Sukuk bond depending upon their strength in different areas. For instance, the international banks having more clientage base in the EU and the US are asking the government for going ahead with eurobond, while banks having penetration in the Middle East are making efforts to convince them for launching sukuk bond.

 “We will take decision keeping in view competitive interest rate and offered size of the bond,” the official said.   The official said the process of selecting lead managers for the upcoming transaction will kick-start through media advertisement in coming days.    

“We are just analysing market appetite for placing right kind of transaction on account of launching the paper,” another official at the Finance Division said. “Efforts are underway to select lead managers with the possibility to launch sukuk or eurobond anytime in the last week of October or first week of November for avoiding dwindling foreign reserves.”

In the budget 2017-18, the government had disclosed its plan to launch $1 billion worth of sukuk during the current fiscal year. The country’s current account deficit had peaked to $2.053 billion in July of the current fiscal year of 2017/18 against $662 million in the same month of the last fiscal, indicating that it widened over 200 percent.  

The SBP’s foreign exchange reserves dropped to $14.3 billion during the week ended August 11, equivalent to around three months of imports. The country’s total foreign liquid reserves fell to $19.941 billion during the last week from $20 billion a week earlier. Foreign exchange reserves of banks stood at $5.631 billion.

There is need to shore up foreign currency reserves on immediate basis otherwise Pakistan may plunge into more deep crisis as the multilateral donors such as the World Bank might suspend its program loans if the reserves fell below meeting requirement of three months import bill.

Pakistan’s economic managers were preparing short-term plan to generate additional $4 to $6 billion foreign inflows out of which 50 percent will be obtained through non debt creating inflows, while remaining resources will be generated through launching of international bonds, soft loans, grants and some proceeds through privatization.

The execution of this plan for increasing dwindling reserves is the dire need of the hour otherwise it is written on the wall that Islamabad will have to again knock at the door of the IMF anytime in 2018.

It is yet to see how the politically weak government which is making last ditch efforts for its survival will be able to steer the economy out of abyss for short to medium term period in months and years ahead.