Seeking to shore up its foreign exchange reserves, Pakistan plans to launch a dollar-denominated diaspora bond – to be named Pakistan Banao Certificate – on January 31.
Prime Minister Imran Khan’s cabinet has okayed rules that would govern the rules for the bonds this week, a leading Pakistani newspaper Dawn reported.
Pakistan has been in dire straits since last year, when its foreign exchange reserved dipped sharply to the surprise of economists. Since taking over the government last summer, PM Khan has secured billions of dollars in support and loans from friends and Arab allies including Saudi Arabia and United Arab Emirates.
There is a real prospect that despite some quick fixes to the balance of payments, Islamabad may next year turn to the International Monetary Fund for a bailout package – which is likely to come with some hard conditions including politically costly price hike.
The need for a recourse to the IMF arises from the fact that despite vast potentials, Islamabad’s exports remain stagnant, and import bill continues to spiral.
According to the Dawn report, Finance Minister Asad Umar says the certificates, the first of their kind, will be of two maturities – one with three years at about 6.25pc return and another with five-year maturity carrying 6.75pc return.
The newspaper says four banks have been picked to complete the transactions but officials have refused to reveal any targeted amount from the bond introduction.
“It will be an open-ended transaction and its size would depend on the response from Pakistanis abroad,” an unnamed official told the paper.
The Khan government believes it has secured enough support to fulfill the balance of payments needs for the current year and the bond will help build reserves on top of the base level.
“We don’t need to go for any other international capital market transaction this fiscal year,” the official said, according to Dawn, when asked about $2.5-3 billion Eurobond or Islamic Sukuk launch in the international capital markets budgeted for the year.
According to the report, an official said that international markets needed “endorsement from the International Monetary Fund (IMF) which was elusive at this stage and hence the transaction could be expensive.”
