Govt decides to launch $1 bn Sukuk Bond after Eid

ISLAMABAD: In a bid to bridge the financing gap on external accounts, the government has decided to kick-start the process for launching around $1 billion Sukuk Bond after Eidul Azha and the upcoming transaction will be accomplished by end October or early November this year, The News has learnt.

“The pre-launch process for international bond will start after Eid and issue timing will be decided in accordance with market conditions, ample appetite and advice of joint leader managers,” Federal Minister for Finance Ishaq Dar confirmed when The News sought his comments on Thursday.

The rising twin deficits -- the current account deficit and fiscal deficit are again becoming cause of worrisome for the economic managers and the government is preparing short to medium strategy to cope with the challenging situation. The government intends to boost exports, remittances and foreign direct investment in a major way in a bid to rely upon non-debt creating inflows, however, the government will have to ensure bridging of yawning gap through debt inflows such as launching of bonds and getting borrowings from multilateral and bilateral creditors.

However, the sources said that Finance Ministry moved formal request before the Finance Minister Ishaq Dar for launching of Sukuk or Eurobond in first half (July-Dec) period of the current fiscal year. Ishaq Dar has accorded approval and the process of selecting joint leader managers (JLMs) will kick-start after Eidul Azha holidays.

“The advertisement for selection of JLM will appear into national or international media outlets after Eid and this process will be accomplished by first week of November 2017,” said the official.

Pakistan’s total liquid foreign reserves held by the country stood at $20.001 billion on 25th August, 2017. The foreign reserve held by the State Bank of Pakistan was $14.343 billion and foreign currency held by the commercial banks stood at $5.657 billion, totaling the reserves up to $20.001 billion.

During the week ending 25th August, 2017, SBP’s reserves decreased by $32 million to $14,343 million due to payments on account of external debt servicing.

In order to shore up foreign reserves and bridging the financing gap on external account, the government is exploring all its options including relying upon non-debt creating inflows as well as debt inflows for avoiding depletion of reserves in months and years ahead. Pakistan’s current account deficit touched new heights and stood at over $12 billion for last fiscal year 2016-17. The government had projected to curtail the current account deficit at $10 billion but it rose sharply and stood at $2 billion for first month (July 2017).

The current account deficit is going to further rise and may cross $14 billion mark during the current fiscal year. The bridging of financing gap will be major challenge for the economic managers, added the official. Different renowned banks, according to the official, were lobbying for Eurobond or Sukuk bond depending upon their strength in different areas.

For instance, the international banks having more clientage base in EU and US were asking the government for going ahead with Eurobond while banks possessing penetration in Middle East were 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,” said the official and added that probably the rate of Sukuk bond might be more attractive but Pakistan would have to see possibility for getting more on subscription from investors.

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.