PAKISTAN has successfully sold a fresh debt of $2.5bn to international investors in what analysts had been describing as a significant investor-sentiment test, days after the IMF announced the resumption of its lending to the country under its $6bn programme.

The 39-month loan signed in July 2019 was suspended almost a year ago. The Eurobond plan had been on the cards for the last one year but was postponed because of the Covid-19 crisis and the suspension of the IMF programme over differences between the government and the Fund on electricity prices, the central bank’s autonomy and other issues. It is for the first time that Pakistan has raised funds through global markets after issuing $2.5bn of securities in 2017.

The money will be used to shore up the country’s meagre forex reserves and repay the maturing loans of $2bn in October this year and December 2022. The government’s decision to issue the new Eurobond debt has had a positive impact on the exchange rate, with the rupee having appreciated by more than 4pc against the dollar during the last three months. According to a report, Pakistan’s total global capital market debt stock, including the fresh debt, stands at $7.8bn.

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That the three-tranche note was oversubscribed in spite of the country’s poor international credit rating underlines the appetite of investors and fund managers for a reasonably priced sovereign debt. While some may argue that there could have been a better deal had the government launched the dollar bonds earlier, the sale of the five-, 10- and 30-year notes at a yield either lower than or close to the upper end of the indicative prices shows it is not that bad after all. Besides, the benchmark US treasury yields have also been moving upwards and the third wave of the pandemic has accentuated risks all around. The sudden replacement of the veteran finance minister by a younger, inexperienced politician just a day before the issue did not affect investor sentiment or yields. The $500m 30-year bond yield at 8.875pc against an indicative price of 8.875-9pc may appear a bit ‘expensive’ but the uncertainties associated with longer-term debts always fetch higher yields. The $1bn five-year note yields 6pc and the $1bn 10-year note 7.375pc against the indicative yields of 6.25pc and 7.5pc.

Indeed, the longer-term, market-based debt is a much better option for Pakistan than shorter-term commercial borrowings for balance-of-payments stability and certainty. However, it has to be returned one day. For years, we have been borrowing left, right and centre to repay past loans and pay import bills. This is unsustainable. The semblance of external account stability achieved in recent months should now be used to boost investments in manufacturing in order to produce surpluses for exports for a resolution of our debt and external account troubles.

Published in Dawn, April 2nd, 2021