Pakistan’s dollar bonds surge 1.2pc, touch two-year high post IMF’s $1.1billion nod

KARACHI: Pakistan’s dollar bonds soared to a two-year peak on Wednesday, buoyed by the International Monetary Fund’s (IMF) preliminary nod for a final $1.1 billion bailout tranche and the country’s pursuit of another loan to bolster its economy.

The 10-year $500 million bond, which matures in September 2025, increased 1.2 cents to 93.5 cents on the dollar, reaching its highest level since March 2022, as reported by Bloomberg.

The IMF's said that it had reached a staff-level agreement with Pakistan, which, if approved by its board, will release $1.1 billion for the country's floundering economy, made investor sentiment about Pakistan's economy stronger. The funds are the final tranche of a $3 billion rescue package Pakistan secured last summer, which averted a sovereign debt default.

As a result, the country's dollar bonds were among the top performers in emerging markets on Wednesday. Thare are high hopes that the global lender will consent to a larger and longer new loan programme that will reduce the likelihood of default.

Data from Arif Habib Limited, a brokerage house in Karachi, shows that the five-year note, which matures in April 2026, gained 0.9 percent day-on-day to 88.8 cents on the dollar. By agreeing to a nine-month stand-by arrangement (SBA) with the IMF in last June, Pakistan avoided a sovereign debt default, marking a major victory. The timing of this bailout was critical because the previous extended fund facility programme had expired without completion.

The second review of the loan programme occurred immediately after the formation of the new cabinet. Thus, the review is anticipated to be considered by the IMF’s board in late April. The IMF deal demonstrates the new government's commitment to guiding Pakistan from stabilisation to a robust and long-lasting recovery.

“Pakistan's economic and financial position has improved in the months since the first review, with growth and confidence continuing to recover on the back of prudent policy management and the resumption of inflows from multilateral and bilateral partners," the IMF said.

Discussions on a medium-term programme are anticipated to begin in the coming months, according to the IMF, which stated that Pakistan has indicated an interest in receiving another bailout during the review talks.

On Wednesday, Pakistan's prime minister, Shehbaz Sharif, informed his cabinet that the country needs a fresh loan from the IMF and that obtaining this arrangement would require raising the tax base.

Pakistan's increasing need for external funding and diminishing foreign exchange reserves have made it significantly dependent on IMF support. According to the State Bank of Pakistan, the total amount of external debt that needed to be serviced in FY24 is $24.3 billion, of which $3.9 billion has been set aside for interest payments and the remaining $20.4 billion for principal repayments.

Of this total, $13.5 billion has already been either repaid or rolled over. Consequently, $10.8 billion remains payable within the remaining 3.5 months of the current fiscal year, with $2 billion already inthe process of rollover, possibly in the next few weeks.

This leaves $8.5 billion outstanding, comprising $1.3 billion in interest and the rest in principal. Additionally, another $4 billion is set to be rolled over by June, resulting in a total repayment obligation of $3.5 billion by that time, inclusive of a $1 billion Eurobond payment due in April. Looking ahead to FY25, the debt repayment is projected to be similar to that of FY24, with an estimated amount of $12 billion to be rolled over.