Pakistan ready to issue new international Sukuk as soon as Oct

ISLAMABAD: Pakistan has planned to raise upto $1.5 billion with an international issue of Islamic bonds as soon as October to bolster finances hit by the coronavirus pandemic, officials said on Monday.

They said the government has decided to launch the Sukuk bond to raise $1 to $1.5 billion by pledging asset-backed guarantees of international airports of Lahore and Islamabad after making repayment of $1 billion on the maturity of the international bond next month, .

A top official of PTI led government told The News in background discussions that Islamabad would repay $1 billion as the principal amount of Islamic denominated Sukuk Bond on October 13, 2021, at the completion of its five year maturity launched the last PML (N) led government in 2016.

“Preparations are underway for launching fresh Islamic Sukuk bond to generate $1 to $1.5 billion within next one and half month period. The government approved asset-backed guarantees in the shape of three international airports including Lahore and Islamabad as well as certain portions of motorways,” top official sources confirmed to The News here on Monday. The Ministry of Finance has secured No Objection Certificate (NOC) from the Ministry of Aviation and Ministry of Communications related to airports and portions of motorways for holding as asset-backed guarantees to launch Sukuk bond. The government also intends to launch domestic Sukuk in months ahead.

The federal cabinet has already granted approval for issuing transactions of international bonds for 12 months period and the Ministry of Law also validated that after approval on the basis of the 12-month note program there was no need to seek fresh approval for launching this Sukuk bond. The Ministry of Finance had estimated to launch $3.5 billion through international bonds out of which the government had so far launched $1 billion bonds in July 2021.

Now the government intends to launch a $1 to $1.5 billion bond keeping in view the appetite of the market by end of October or early November 2021. The government also hired the services of four Financial Advisors to accomplish this upcoming transaction. “The remaining $1 to $1.5 billion bonds will be launched in the second half (Jan-June) period of FY 2022,” said the official sources.

The external account of Pakistan’s economy will rely heavily upon remittances from abroad as failure to materialize it would worsen the balance of payment position. A sharp increase in imports owing to higher POL and commodities prices could rear its head as another major risk.

Pakistan’s current account deficit surged to $2.3 billion in the first two months (July and August) of the current fiscal 2021-22 mainly because of a sharp increase in imports bills. The State Bank of Pakistan had estimated that the CAD might hover around 2 to 3 percent of GDP, equivalent to $6 to $9 billion during the ongoing fiscal year.

The overall external debt repayment and obligation is estimated to consume $14.7 billion during the current fiscal year 2021-22. The government will have to repay external debt and obligations to the tune of $830 million to Paris Club, $4.7 billion to Non-Paris Club, $2.6 billion to multilateral creditors, $4.448 billion to commercial creditors, $1 billion on bond repayment, and $1.068 billion to the IMF.

The increased imports of food commodities including wheat, sugar, and cotton consumed $8.2 billion in the last fiscal year. The situation has arisen where the government will continue importing such food commodities in the current fiscal year as well with higher prices so import bills might go up further.

Pakistan’s economic managers will have to walk on a tight rope to stick to the IMF program as there are strong indications that the government would make last-ditch efforts to convince the IMF for showing a lenient attitude in the upcoming round of review talks scheduled to kick-start from September 29, 2021.

The virtual talks are expected to take place for 10 to 12 days and is expected to be finalized on eve of the Finance Minster’s visit to Washington D.C for attending the annual meeting of Breton Wood Institutions.