Bonds not possible unless IMF plan revived

ISLAMABAD: With depletion of foreign exchange reserves by $500 million just in the last 15 days, the Ministry of Finance high-ups have conveyed to top guns of the government that issuance of Euro/Sukuk bonds might not be possible or prove more expensive without revival of stalled $6 billion IMF programme.

The depletion of foreign exchange reserves have rung alarm bells in the Q-Block (Finance Ministry) at the Federal Secretariat as virtual technical level talks with the IMF were underway for revival of the stalled programme. Without reviving the IMF programme, the pace of depletion of foreign exchange reserves might get more momentum, keeping in view the future debt requirements, especially in the second half of the current fiscal year 2020-21, said the official.

The foreign exchange reserves held by the State Bank of Pakistan (SBP) depleted over $500 million in the last two weeks as the reserves dropped by $300 million on September 25, 2020 while another $205 million decreased on October 2, 2020. According to the SBP statement, the total liquid foreign reserves held by the country stood at $19.35 billion on 2 October, 2020. The foreign reserves held by the SBP stood at $12.15 billion while reserves held by commercial banks were $7.19 billion. During the week ended 02-October-2020, the SBP made external debt repayment of $580 million. After accounting for official inflows, including $300 million received from the Asian Development Bank (ADB), the SBP reserves decreased by $205 million to $12.15 billion.

The IMF had revised macroeconomic targets for the current fiscal year as the GDP growth rate was lowered down to 1 percent against official projection of 2.1 percent. The IMF also expects that the unemployment rate will go up and can touch 5.1 percent in the current fiscal year against 4.5 percent in last financial year.

The Ministry of Finance is making arrangements to launch Eurobond/Sukuk bond to generate $2 billion during the second half of the current fiscal year. The government has sought application for selection of financial advisers with the intention to go into the market with accomplishing of transaction after December 2020. The government considers that it can accomplish this task in Jan-Feb of 2021. “At the moment, there is appropriate time to launch both these bonds in international market,” said the official sources.

The government also plans to launch the Panda Bond to attract investments into bonds from the Chinese market in order to generate $200 to $500 million as the first tranche. The transaction of Eurobond and Islamic denominated Sukuk bond could not be possible without revival of the IMF programme. When the Ministry of Finance sources were contacted, they were of the view that the technical talks with the IMF were underway and after evolving consensus between the two sides, the IMF staff would submit request for completion of second review and release of third tranche worth $450 million under the Extended Fund Facility (EFF).

The IMF programme of $6 billion under EFF had turned into stalled mode after outbreak of COVID-19 pandemic; however, the IMF had approved $1.4 billion for extending support to Pakistan under Rapid Financing Instrument (RFI). The ongoing IMF programme of $6 billion was stalled as the ground realities on macroeconomic front changed massively.

Now both sides would have to place agreed targets on macroeconomic front for reviving the IMF programme that would not be an easy task but its implementation would be more challenging amid rising political temperature when Pakistan Democratic Movement (PDM) was all set to launch campaign at roads to oust the PTI led regime.