Buying back bonds: An innovative solution for Pakistan’s financial woes

Countries that have successfully bought back their debts include Argentina, El Salvador, Indonesia, and Ecuador

Writing for The Express Tribune, author AAH Soomro suggests that efficient management of companies and countries requires constant effort to maximize profits and minimize expenses. 

The author points out that global executives are always looking for opportunities to increase profits by using financial strategies such as buying back debt and bonds issued by their companies or countries.

The author argues that Pakistan could benefit from similar strategies to create wealth. One such option is buying back the global debt and bonds issued by Pakistan. The author explains that when Pakistan raised US dollars via a loan in the international market, it floated a few billion-dollar worth of instruments at a defined sovereign-backed profit rate. These instruments trade in a “secondary” market, where investors can sell or buy them to provide liquidity.

However, due to political instability, delays over the International Monetary Fund’s (IMF) resuming its program, and tight global conditions, Pakistan’s dollar bonds issued at $100 are trading at a much lower rate of $35-$45 in the secondary market. This presents an opportunity for Pakistan to buy back its debt and bonds at a lower price.

The author cites examples of other countries that have successfully bought back their debts and bonds, such as Argentina, El Salvador, Indonesia, and Ecuador. The author proposes two ways for Pakistan to finance these bonds. The first is to launch a short-term, time-bound, and amount bond scheme to attract dollars from overseas Pakistanis in Naya Pakistan Certificates (NPC) at 10-12% until the targeted $3-5 billion bonds are raised. The second is to offer a similar window to US dollar account holders in Pakistan at 9-11% to reduce hoarding under the carpet, bring dollars back into the banking system, and enhance foreign exchange reserves.

The author acknowledges that some may criticize offering such high-profit rates on US dollar-denominated debts, but borrowing at 9-11% to buy instruments at 20-30% annual returns is a profitable trade. The author emphasizes that messaging is critical in this exercise, and policy makers should make firm commitments to utilize savings for nation building.

The author concludes that Pakistan should explore innovative and unchartered territories to improve its credit worthiness and win back the trust of its people. The author encourages policy makers to take risks and not be afraid of investigations or no rewards, as there is a strong possibility of giving a sharp U-turn signal to the market and improving Pakistan’s credit worthiness.

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  1. “Thank you for sharing such an insightful post on innovative solutions for Pakistan’s financial challenges. The proposed idea of leveraging technology to improve financial inclusion and access to finance is a promising approach that can help transform the country’s financial landscape. The use of digital platforms and mobile technology can enable more people to access financial services and products, especially those in remote or underserved areas. This can lead to more economic opportunities, job creation, and overall improvement in people’s lives. I believe that such innovative solutions are crucial for developing countries like Pakistan, and I hope to see more efforts towards implementing them.”

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