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Pakistan to Float $1.5b Eurobonds

Pakistan to Float $1.5b Eurobonds

ISLAMABAD – Pakistan plans to raise $1.5 billion in floating Eurobonds over the next fiscal year after the decision to give preference to hot foreign currencies over $3 billion in bonds over the outgoing exercise was found to be costly.
The $1.5 billion borrowings of floating sovereign bonds are part of the capital inflows for the 2020-2021 fiscal year that the government will receive to meet its external debt obligations and build up foreign exchange reserves, sources highly placed in the Ministry of Finance told the Express Tribune.
The plan had also been communicated to the Pakistani Prime Minister Imran Khan before Eidul Fitr, the sources said.
In the budget forecasts, the government also planned to raise $3 billion in floating sovereign bonds in the 2019-2020 fiscal year, ending June 30. But he abandoned the fundraising plan for the international financial markets after the process of hiring financial advisers to do the job.
The Pakistani central bank and the Ministry of Finance were of the opinion that the issuance of Eurobonds in the current fiscal year could discourage massive inflows of foreign currency, the sources said.
A senior government official, who remained in the deliberations, said on condition of anonymity that the government and management of the State Bank of Pakistan (SBP) had concluded that some of the funds and institutions that invest in government securities would also invest in Eurobonds, it would, therefore, be prudent to abandon the floating bond plan.
Money raised through sovereign bonds is payable in five, seven or ten years, and the government’s decision to favor hot foreign money, which in most cases hardly lasted three months, raises questions of transparency.
“When relatively cheaper longer-term money in the form of Eurobonds was available, which was neither volatile nor threatening exchange rate stability, why did the government not take advantage of it,” asked Dr Zubair Khan, former Minister of Commerce.
The Pakistani Finance Ministry had been asked to state whether it was correct that the decision to postpone Eurobonds, originally scheduled for November 2019, had been taken due to the SBP’s preference for hot foreign currencies.
The Ministry of Finance has also not explained why it had interrupted the process started last September for the hiring of financial advisers for the bond float. He did not respond if the bond issue had been cancelled on the assumption that it would cannibalize hot foreign money.
In October of last year, major European, American and Chinese banks submitted offers to be hired as financial advisers to float sovereign bonds. November 15, 2019, had been set as the closing date for these transactions for having raised $ 2 billion via euros and Sukuk bonds to soften the balance of payments.
Then, in February of this year, the Ministry of Finance told Pakistani newspaper The Express Tribune: “Due to the availability of low-cost external inputs from multilateral and bilateral sources, the government has decided to offer Eurobonds later in the exercise.”
However, due to the situation following the spread of Covid-19 which shook world markets and also affected Pakistan’s macroeconomic indicators, it was deemed impossible to float bonds during these critical times.
(Sahar News Monitoring Desk)

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