Pakistan’s dollar bonds expected to rally in 2024: report

Investors foresee a second consecutive year of rally for Pakistan's dollar bonds as the government is expected to secure another bailout from the International Monetary Fund (IMF), Bloomberg reported on Wednesday. 

The bonds, which almost doubled in value last year, are still attractive to investors who see Pakistan as a high-yield emerging market with a stable currency and improving economic outlook, according to UBS Asset Management and William Blair Investment Management.

Suleman Rafiq Maniya, an independent wealth manager in Karachi, predicts that the bonds can gain as much as 37% in the next 18 months.

Pakistan signed a standby arrangement (SBA) of $3 billion with the IMF in July 2023, which enabled the South Asian nation to avert a sovereign default. 

The loan programme also proved a catalyst for Pakistan’s dollar bonds and helped them to rank among the top performers in the world last year. While the gains are expected to moderate, reforms such as raising fuel and electricity prices may open the door for another loan.

“They seem committed to this IMF program, and that is a significant point because it suggests there is a big likelihood for them to get another bailout,” said Johnny Chen, fund manager at William Blair in Singapore. 

“There is also strong potential for reforms to pick up momentum after the elections,” he added.

An index on Pakistan’s dollar bonds gained 93% in 2023, the best performance in emerging markets after El Salvador, Bloomberg report said. 

In November last year, interim finance minister Shamshad Akhtar had said that Pakistan may seek a fresh loan from the IMF to save its fragile economy.

Investors are trying to gauge the risks as Pakistan goes for elections a month before the current IMF program ends in March. 

Meeting the IMF's stipulations has not only assisted Pakistan in securing funds from friendly nations but has also garnered support from other multilateral lenders. 

Shamaila Khan, head of emerging markets and Asia Pacific at UBS Asset Management in New York, highlights a significant reduction in the risk of default in 2024 due to Pakistan's compliance with the IMF program, emphasizing the criticality of the country's adherence to these guidelines as the base case for investors.