Govt decides to not tap eurobond market for borrowing

[Naveed Yaseen]

AHMED MUKHTAR
ISLAMABAD (October 22 2009): Pakistan will not approach international capital market for Eurobonds before 2011-12 when the fundamentals will be ripe for better rates, Pakistan authorities told lead managers and IMF. Some parliamentarians and lead managers have advised the Finance Ministry for issuing Eurobonds or to raise money from international markets, if not for bonds, but for mega infrastructure projects for public-private partnership.

India and China, avoiding such bonds, have not stopped their infrastructure spending, and have sought funds from London for the mega projects. In its recent talks, IMF, which refrained Pakistan from Eurobonds from 2003-04 to 2005-06, sought authorities' opinion, who estimated a better rating by 2011-12 and improved international scenario.

"Going to international market will be a suicide now, as local security situation, country's poor rating and liquidity soaked up from international market after global financial crisis", said Dr Ashfaq Hasan Khan, the mastermind of the last three issues of the Eurobonds.

In these circumstances, Pakistan does not have a good story to tell, with 2 percent GDP growth rate, running under IMF program, and fiscal stability remains under greater stress. It would end up at market charging over 12 percent rates, which makes its cost too high.

Regarding recent statement of Finance Minister Shaukat Tarin that Asian Development Bank's guarantee would help reduce the risk for the bond coupon rates, Ashfaq said this proposal floated by a bank was not materialised in the past, too. There are few technical hitches in international market, which kept it just a proposal and not a reality.

Pakistan has told IMF that Pakistan will issue Eurobnds of $500 million each year from 2011-12 to 2014-15, marking its re-entry in the market provided its local conditions and sovereign ratings improved to better levels. The IMF recent document says, "Until recently, Pakistan had been able to access international financial markets by issuing Eurobonds, Global Depository Receipts (GDRs), and exchangeable bonds, as well as through non-residents' portfolio investment in domestic securities.

"Pakistan has maintained a good record in servicing its external private debt despite difficult economic conditions. It is expected that the country can regain access to international capital markets and see a pickup in FDI within two to three years, provided the adjustment effort is successfully implemented, financial market conditions continue to normalise, and cross-border private capital flows recover to pre-crisis levels."

Pakistan has also to amortise $622 million for a Eurobond during quarter January-March 2009-10. Pakistan's stock of Eurobonds is $2.15 billion in 2008-09, $1.52 billion in 2009-10 and 2010-2011 and increasing up to $2.006 billion in 2011-12 with a $500 million issue.

Then it would be $2.506 billion in 2012-13, making it $3.006 billion in 20013-14 and again raising it to $3.506 billion in 20014-15. According to the Emerging Market Bond Index (EMBI), secondary market spread in basis points for Pakistan was 687 in 2007-08 and 10.39 during 2008-09.

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