Pakistan’s third attempt in the last year and a half to raise debt by floating a dollar-denominated Eurobond has received a lukewarm response from international investors, restricting its option to borrow only $500 million at a very high interest rate of 8.25%.On Friday, the finance ministry said it had issued a $500 million Eurobond with a maturity of ten years in the international market at a coupon rate of 8.25%. “Under the circumstances, the finance minister decided that it would be prudent to restrict the issue to the announced level of $500 million in order to cover the forthcoming maturity in March 2016 of a bond issued in 2006,” the ministry had said in its statement. The country, however, appears to be in a debt trap; it is borrowing to retire borrowing. The government paid 6.12% over and above the US treasury rate for ten-year bond – a cost that highlights investors’ sentiments about the health of the country’s economy. Earlier this year, the premium had shot up to 10pc. The latest bonds too are expected to command a significant premium in the market, suggesting that the government may have overpriced them.Why was there such haste to hold this exercise given that reserves are at a comfortable level, and global markets are still jittery over China and the possibility of a hike in US interest rates?The finance team should explain the matter clearly. Overall, the bond exercise can be said to be narrowly successful given that the targeted amount was raised, but it appears investors remain wary of the government’s story of a significant improvement in the economic situation; these questions prompted the government to highlight during its road shows that another IMF programme next year might well be an option for Pakistan.Clearly, the improvement in the reserve coverage ratios is not enough to assuage the concerns of lenders, and the government ought to be careful about overselling these as its success story.
pk.shafaqna.com
