‘Pakistan unable to launch bonds’ – Newspaper

KARACHI: The government’s inability to launch Euro and Panda bonds could put the economy under stress, which may not help the country get improved ratings from international rating agencies, said financial experts.

“The government is yet not able to launch bonds in the international market to raise dollars due to poor country ratings given by the international rating agencies,” said sources in the financial sector.

The finance minister and the State Bank of Pakistan governor met top-class rating agencies in Washington last month to convince them that the macroeconomic numbers of the economy have improved. However, a favourable outcome has yet to be noted.

Twoo rating agencies have already upgraded Pakistan’s rating by one notch. On Jul 29, Fitch upgraded Pakistan’s long-term issuer rating by one notch to CCC+, and on Aug 28, Moody’s upgraded Pakistan to Caa2.

SBP purchases $1.3bn from open market

“Despite all efforts and hiring companies for the launching of Panda bonds in the Chinese market, the government has failed to achieve this goal,” said Atif Ahmed, a banker and currency market expert.

Finance Minister Mohammad Auran­gzeb met China’s Vice Minister of Finance Liao Min in Washington last week. The minister reportedly said the government aims to launch an inaugural Panda bond in the Chinese market to diversify its financing base.

Financial experts said the Chinese companies are less interested in buying Pakistani bonds despite possibly higher returns.

The failure to sell Pakistan International Airlines (PIA) reflects that foreign investors are uninterested. Only one domestic real estate developer could qualify, but the bidding ended without a positive conclusion.

Prime Minister Shahbaz Sharif recently visited Saudi Arabia and Qatar and announced that the two countries were ready to invest billions of dollars in diversified sectors. However, there was little enthusiasm in the financial market about the possible investments from the two countries.

“What State Bank can do is to purchase maximum dollars from the local market, restrict imports, keep exchange rate stable for higher selling of export proceeds, curb illegal business of foreign currencies and provide maximum incentives to overseas Pakistanis for more remittances,” said a senior banker and expert on currency movement.

SBP reserves

The State Bank looks to have found an alternative source of dollars as it bought about $1.3bn from the interbank market in June and July.

Despite buying from the market, the foreign exchange reserves of the State Bank fell in July to $9.22bn compared to $9.389bn in June. The State Bank is responsible for external debt servicing, for which the government made efforts to reschedule and rollover debts and get loans from the donor agencies as it succeeded in securing a new $7bn Exten­ded Fund Facility from the IMF and received the first tranche in September.

Financial experts said the State Bank has been buying dollars from the interbank market for years to protect or improve its reserves. However, in June 2023, when the country was about to default, it was decided to increase the reserves.

The SBP’s reserves in June 2023 fell below $4bn. The government has the target to increase the reserves of the SBP to $13bn by the end of FY25.

Experts said the remittances jumped by 39 per cent to $8.8bn in the first quarter, providing sufficient liquidity, while exporters’ selling remained high due to a stable exchange rate. At the same time, the imports are still restricted, which means less spending of dollars and less pressure on the external account.

In the first quarter of the current fiscal year, the foreign direct investment inflows also increased by 48pc.

Published in Dawn, November 3rd, 2024