A significant improvement in the external accounts has brightened the prospects of Pakistan’s soon re-entry into the international capital market as the yield on 10-year benchmark bonds fell to a 3-year low in single digits on February 21.
Market sources said that despite this encouraging development, the government has not issued any more bonds to raise dollars from the international market.
A research report by Topline Securities said that the yield on Pakistan’s Eurobonds has come down from 50% to 9%, a 3-year low.
The yield on 10-year bonds in June 2023 was 61.4% as all international rating agencies had downgraded Pakistan’s rating in 2023 as the country was about to default, a time when the country was looking for help to avoid a default-like situation.
Although the country’s rating has not changed but some external account indicators have improved, financial experts see the 3-year low yield as a good sign for the economy but not enough for the country to re-enter the bond market.
Finance Minister Muhammad Aurangzeb said that the country will launch new bonds after the rating is upgraded to the single ‘B’ category.
The finance minister was struggling to get support from rating agencies during his recent visit to the US to get the upgrade. The federal minister held fruitful talks with S&P, Fitch and Moody’s and expressed hope that Pakistan will soon get a ‘B’ rating.
Muhammad Sohail, Chief Executive of Topline Securities Limited, said that profits are now in single digits, Pakistan’s credit rating is likely to improve soon.
This change is mainly due to the IMF-led economic stabilization policies that have helped bring the country back from the brink of default. Such an upgrade will open the doors for Pakistan to borrow at favorable rates from commercial and international debt markets, which will support its low foreign exchange reserves.
Experts say that the most significant improvement has been seen on the external front as the State Bank’s reserves have now crossed $11.2 billion, remittances are expected to be around $35 billion by the end of fiscal year 2025, FDI has increased by 56 percent during the first 7 months of the current fiscal year and the current account is in surplus at $682 million.
The satisfactory picture on the current account and foreign exchange front has led to stability in the exchange rate, which is a major attraction for foreign investors.
The State Bank of Pakistan’s working paper reviewed the situation related to the increase and decrease in bond yields, with yields on Pakistani bonds skyrocketing since April 2022.
The working paper says that factors such as political instability, rising inflation concerns, dwindling foreign exchange reserves, downgrades in bond ratings and exchange rate fluctuations have recently determined yields on Pakistani bonds.
Pakistan could not launch Panda Bond despite a favorable Chinese market, the government had set a target of launching Eurobonds worth $2 billion in Eurobonds in 2024-25, the Finance Minister said that the government intends to obtain foreign financing through Eurobonds in 2025-26.
