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Pakistan mulls over launching another Eurobond
January 03, 2018
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ISLAMABAD: With resumption of Paris Club repayments and meeting other foreign liabilities, Pakistan is considering launching another Eurobond worth $1 billion around March 2018 in order to avoid steep fall in foreign currency reserves.

“The government has decided to give preference to Eurobond because it does not require any assets for launching this bond,” official sources said.

The launching of Islamic denominated Sukuk requires asset guarantee such as the government had to pledge portion of Motorway for launching last Sukuk bond last month.

Pakistan’s debt servicing requirements on external front stood at $6 billion for whole financial year out of which $2.4 billion were already repaid while the remaining $3.6 billion would have to be paid back in next six months (Jan-June) period of 2018.

Instead of waiving off Paris Club loans, the Musharraf regime had preferred to get rescheduling of foreign debt in the aftermath of 9/11, 2001 when Islamabad became an ally of the US in its war against terror.

“The Finance Ministry has estimated that Pakistan’s external repayments would be standing less than $6 billion over next 12 months from January to December 2018,” said the official sources.

One of the bulk repayments is expected to become due in late January 2018, said the sources and added that the government is exploring its options to get dollar inflows from all possible avenues in months ahead.

Reserves despite pressures

On account of external financing requirements, spokesman for the Finance Ministry stated that Pakistan continues to maintain a healthy level of foreign exchange reserves despite pressures.

Second, the gross financing need for the year 2018 is not as high as reported in the media. As per international standards, a country’s gross financing need is an aggregate of current account deficit plus debt servicing of the year. “Based on this internationally recognised accounting standard, Pakistan’s gross financing need for 2017-18 is estimated at $17 to 18 billion (5 to 5.3 per cent of GDP),” the spokesman stated.

This gross financing need represents current account deficit, medium long-term amortisation and stock of short-term external debt. It is to be noted that in FY 2016-17 Pakistan’s gross financing need was 17.107 billion i.e. 5.6 per cent of GDP of that year. As such the external gross financing need this year will be less than the last year in terms of percentage of GDP.

Furthermore, it is clarified that arrangements are in place to meet the gross external financing need of the country.

These arrangements include government official inflows from multilateral and bilateral sources, Sukuk/Euro bonds, privatisation proceeds, foreign direct investment, private capital inflows and commercial financing, if necessary.

After accounting for these arrangements, the net financing gap that the country faces this year is estimated to be in the range of $2 to 2.5 billion.

The spokesman said data for the first five months of the current financial year reveals a rebounding external sector of the economy.

After remaining in negative territory for several years, exports have shown 12 per cent growth in the first five months of this year. Remittances have now returned to growth zone after remaining negative last year.

The FDI registered a phenomenal growth of 57 per cent in first five months of this year. More importantly, imports are showing visible deceleration on month-on-month basis.

With these multifaceted positive trends further strengthening in the second half of the current financial year, Pakistan will be able to make up for the external gross financing comfortably while maintaining the foreign exchange reserves at a healthy level.


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