Government shelves $3bln sovereign bond issuance plan

ISLAMABAD: Cash-strapped Pakistan has shelved a plan to raise $3 billion through sovereign bonds, fearing tepid appetite in the international market, but it still banks on yaun-denominated panda debt and IMF’s bailout to support its dwindling foreign reserves, sources said on Thursday.

The sources said the government is anticipating lukewarm response it has faced in the past.

Pakistan’s dollar-denominated sovereign bonds maturing in 2027 and 2036 dropped, with the 2036 issue down 2.4 cents in February when the country fell into confrontation with India.

“We don’t want to repeat such a situation so it was decided that the international sovereign bond would not be launched during the current fiscal year,” one top official of the finance ministry confirmed with The News.

The government estimated foreign inflows of $9.69 billion during the current fiscal year’s budget, including $3 billion from sovereign international bonds.

It has materialised $2.941 billion in foreign inflows during the first eight months of the current fiscal year from all multilateral and bilateral creditors.

Sources said the government preferred to drop the budgetary initiative for the time being instead of facing any unwarranted situation, having a far-reaching negative impact on the economy.

Officials at the Economic Affairs Division said the estimates of foreign inflows from traditional lenders have been slashed to $5.6 billion for FY2019 – a level that would be materialised “at all costs”.

Disbursements from the Asian Development Bank and the World Bank are showing dismal performance. Therefore, the government would have to gear up really hard to achieve the desired foreign inflows.

Sources said efforts are still underway to launch panda bond in Chinese currency during the current fiscal.

The government in December last year approved the launch of Panda bond with possible transaction size equivalent to $500 million in two different tranches. The amount could be used to pay back piling up obligation in months and years ahead, according to the sources.

The country paid back more than $1 billion on maturity of Eurobond and markup during the current week, which would reflect in the next week’s foreign reserves statement by the State Bank of Pakistan (SBP).

Total liquid foreign reserves held by the country stood at $17.228 billion as on 5 April, 2019. The foreign reserves held by the SBP stood at $10.271 billion and net foreign reserves held by commercial banks were $6.956 billion.

SBP’s reserves decreased $220 million to $10.271 billion due to external debt servicing and other official payments.

The country has received generous financial support commitments from friendly countries to the tune of $9 billion, including $4 billion from China, $3 billion from Saudi Arabia and $2 billion from UAE.

But, the foreign currency reserves held by the SBP still reached just $10.2 billion till April 5, 2019. The fact demonstrates that the heavy repayments and current account deficit are causing depletion of borrowed money at a rapid pace.

The government will have to explore ways and means to boost dollar inflows to build up foreign exchange reserves. This should be done through non-debt inflows, such as exports, remittances and investments.

Analysts said Islamabad does not have any story on economic front to share with potential international investors without securing a bailout package from the International Monetary Fund with which it is currently in talks.