Govt allows launching of three international bonds to raise $2.5 bn

ISLAMABAD: The government has finally allowed Ministry of Finance to launch three international bonds including Eurobond, Sukuk bond and Chinese Panda bond for raising $2.5 billion loans in order to build up foreign currency reserves, it is learnt.

Amid rising debt burden, the total external debt and liabilities had already gone up to $112 billion for end June 2020 against $95.2 billion when the PTI came into power after winning the last elections in June 2018. However, the public external debt (owned by government) in accordance with definition of Fiscal Responsibility and Debt Limitation Act, the external public debt peaked to $77.9 billion on June 30, 2020 against $70.2 billion two years back when the PTI assumed reins of power in June 2018. The incumbent regime jacked up net external public debt by $7.7 billion in the last two years.

In totality, Pakistani government and one autonomous body Wapda are all set to launch international bonds for collectively fetching around $3 billion loan amount during the current fiscal year.

The first such transaction is expected to be accomplished by Wapda within the ongoing month as it plans to raise a $500 million loan through the launching of international bonds for construction of major dams.

“Ministry of Finance is making arrangements for launching three international bonds including Eurobond, Islamic Sukuk bond and Chinese Panda Bond and all these three transactions are expected to be accomplished in second half (Jan-June) period of the current fiscal year” top official sources confirmed to The News here on Friday.

The Ministry of Finance had to face a lot of resistance from the federal cabinet for seeking permission to launch international bonds especially Islamic Sukuk bond mainly because some ministers always sternly opposed any move for holding any assets of the country as guarantee for raising any amount against it as they had termed it selling of assets when they were sitting in opposition benches in the past. It took almost two years to convince the ministers of the cabinet that Islamic denominated bond requires holding of any such asset as guarantee for raising money and after maturity of bond the assets got cleared so launching of bond against these assets could not be termed as selling them.

The latest official report of the Ministry of Finance states that external public debt was recorded at $ 78 billion at end-June 2020, registering an increase of $ 4.5 billion during FY 2019-20. The break-up of external public debt showed that government external debt stood at $70 billion out of which $68.9 billion was long term loan obtained from multilateral, Paris Club, other bilateral, Euro/sukuk/global bonds, commercial loans etc. The outstanding Paris Club loan stood at $10.924, Multilateral creditors $30.838 billion, other bilateral $13.428 billion, Euro/Sukuk global bonds $5.3 billion, commercial loans $8.2 billion and others $148 million.

The short term loan amount stood at $1.4 billion. The outstanding loan obtained from the IMF stands at $7.680 billion out of which the federal government obtained $2.833 billion and SBP owed $4.847 billion. The IMF loan for budgetary support is booked by the Ministry of Finance while for balance of payment support it appears on the books of State Bank of Pakistan.

The Ministry of Finance in its report further states that Pakistan’s external debt is derived from four key sources, with around 51 percent coming from multilateral loans, 31 percent from bilateral loans, 11 percent from commercial loans and 7 percent from Eurobonds/Sukuk.

Although borrowing from commercial sources has relatively increased during the last few years, multilateral and bilateral sources still cumulatively constitute 82 percent of external public debt portfolio as of end June 2020.