PPP, PTI slam issuance of Eurobonds on higher rates

KARACHI: Members of the Pakistan People’s Party and the Pakistan Tehreek-e-Insaf in the Senate and the National Assembly have criticised the government’s issuance of Eurobonds last week, with one critic noting that the rate of 8.25 percent was much higher than in other regional countries and another saying the response from the global markets was “extremely poor.”
Pakistan issued a new bond of $500 million in the international Eurobond market with 10 years’ maturity. On April 9 last year, Pakistan had raised $2 billion by issuing five years’ and ten years’ Eurobonds, $1 billion from each type of bond, which respectively carried interest rates of 7.75 percent and 8.25 percent.
Speaking in the Senate on Wednesday, PPP senator Saleem Mandviwalla, who is chairman of the Senate’s Standing Committee on Finance and Revenue, termed the issuance of Eurobonds a disaster for Pakistan’s economy, saying that the matter of Eurobonds would be discussed in the Senate and its Finance Committee for ascertaining the reasons behind that the bonds’ issuance.
MNA Asad Umar, who is a leader of the PTI, had said in a statement on Tuesday that comparison with the recent issuing of bonds by other emerging economies makes for shocking reading.
He gave the example of Kenya, which in its first-ever issue of the bonds last year raised $1.5 billion, at a yield of 6.87 percent. A few months ago, he added, Sri Lanka raised $650 million at a pricing of 6.125 percent, which was more than 2 percent lower than what Pakistan was going to pay.
The Ministry of Finance announced last week that the coupon rate was 8.25 percent, which is equal to the rate at which it issued such bonds in April last year.
In recent visits to London, Los Angeles and Boston, the Governor of the State Bank of Pakistan, Ashraf Wathra, and Finance Secretary Waqar Masood Khan pitched the launching of the bond. Finance Minister Ishaq Dar made the same promotional effort in New York on September 23 .
Despite a tight and weak global market and the jittery investor sentiments, the issue was twice oversubscribed, said the official announcement.
Finance Minister Dar, with the approval of the Prime Minister Nawaz Sharif himself, announced the level of $500 million in order to cover the forthcoming maturity in March 2016 of a bond issued in 2006.
Senator Mandviwalla questioned who would pay out the $2.5 billion in the next ten years, saying that ultimately it is the ordinary Pakistan who would suffer in future governments’ efforts to reduce the financial burden left by the present one.
He said that Pakistani consumers were already overburdened by the high indirect and withholding taxes which had sharply reduced their purchasing power.
The economic policies of the government had crossed all the limits in its efforts to build the country’s foreign reserves through reliance on the international debt market, he said.
“Reserves built up entirely through borrowings cannot provide the foundation for sustainable growth, especially if the borrowing is being done at exorbitantly high levels of interest cost,” He said.
The senator asked whether the Ministry of Finance was serving Pakistani taxpayers or the International Monetary Fund.
“Why couldn’t they negotiate till the third quarter to wait for the global markets to recover to get better rates?” he demanded.
“The explanation of the Finance Minister to raise money to refinance the 2016 maturing bond is naive, as the maturing bonds coupon rate is 6.25 percent, versus the fresh issue at 8.25 percent. Is there any rationale for the 200bps additional cost of rolling debt?”
Senator Mandviwalla demanded a review of the policy of borrowing from the international market, saying the government must stop its reckless international borrowing and minimise its reliance on foreign debts. People must demand an audit of the public debt, and all new loan contracts should be subject to parliamentary debates and approval, he insisted.
Zulfiqar Halepoto, a deputy information secretary of the Pakistan Tehrik-e-Insaf, told The News that efforts by the Pakistan Muslim League (Nawaz) to attract development finance institutions had been fruitless.
"The extremely poor response from the global markets to the Eurobond offering by Pakistan shows that global investors remain unconvinced of the improved economy narrative that the government has been trying to sell," he said.
The response of the international market was consistent with the low level of foreign direct investment Pakistan has been receiving in recent years, which had plunged from $5 billion a few years ago to just $1 billion by fiscal year 2014-15, he noted.