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February 25, 2021

Government expects $1bln from dollar-denominated Eurobonds next month

Business

February 25, 2021

ISLAMABAD: Pakistan is expecting $750 million to $1 billion from dollar-denominated Eurobonds tentatively next month as IMF loan program revival restored investor confidence in the country’s economic system, people in the know said on Wednesday.

After facing stiff resistance from the federal cabinet for launching asset backed Islamic bond Sukuk, the ministry of finance will move ahead with the launching of dollar-denominated Eurobonds to fetch $750 to $1 billion, according to sources.

The size of the Eurobond has not yet been firmed up as it will be determined keeping in view the appetite of the international market but there are indications that Islamabad may opt to go ahead with launching of Eurobond worth $1 billion, according to the people privy to the development.

The International Monetary Fund (IMF) and Pakistan reached a staff level agreement last week to revive $6 billion extended fund facility that had been pending for a year.

“The IMF’s executive board is expected to grant $500 million by end March 2021 and then the Eurobond would be launched to restore Pakistan’s presence on the radar screen of international investors,” an official, requesting anonymity, told The News.

Sources said the financial advisers have already conducted deliberations to finalise strategy for narrating Pakistan’s economic story in front of international investors. Investor conferences would be finalised at different destinations to lure international investors, they added.

The building-up of foreign currency reserves is the major target under the IMF program and therefore the government will have to depend upon rollover of loans and multibillion dollars through issuance of international bonds in months to come.

The State Bank of Pakistan also will have to jack up foreign currency reserves on quarterly basis to achieve net international reserves targets under the IMF condition.

This would be the first debt market transaction during the PTI-led regime in first two and half year rule as this party opposed issuing of international bond vehemently when it was sitting on opposition benches. The issuance of Islamic bonds bond was always opposed on the pretext that assets were mortgaged for getting loans.

Ministry of finance had to face an embarrassing situation when it moved a summary for launching sukuk bond on the basis of F-9 Park Islamabad holding it as asset back for launching this bond but the cabinet members opposed it tooth and nail. Finally the cabinet directed the ministry of finance to come up with a new proposal for mortgaging any other asset for issuing this bond.

Now instead of moving ahead with sukuk, ministry of finance decided to go ahead with Eurobond where the sovereign guarantee is required and there is no requirement for mortgaging any asset back for issuing the bond.

It is yet to see how the government will be able to generate desired interest on upcoming Pakistani papers while some opposition parties are planning long march after senate elections.

The increasing political turmoil might increase difficulties for the government on economic front in months ahead.