KARACHI: Pakistan’s failure to issue Euro and Panda bonds could intensify economic pressures, hindering the country’s efforts to secure improved ratings from international credit agencies, financial experts caution.
Sources within the financial sector indicate that the government’s inability to tap into the international bond market stems from low ratings assigned by these agencies. Despite efforts to engage top rating firms during a recent meeting in Washington, favorable results remain elusive.
Notably, two agencies have recently upgraded Pakistan’s rating: Fitch raised it to CCC+ on July 29, while Moody’s improved it to Caa2 on August 28. However, analysts believe these upgrades are insufficient to facilitate new bond launches.
“Despite our attempts and hiring firms to facilitate Panda bond issuance in China, we have yet to achieve this goal,” stated Atif Ahmed, a banker and currency market specialist. The Finance Minister met with China’s Vice Minister of Finance in Washington to discuss launching these bonds, aiming to diversify the financing base, but interest from Chinese investors appears low.
The recent unsuccessful sale of Pakistan International Airlines (PIA) also reflects a lack of foreign investor interest. Only one domestic real estate developer qualified for bidding, which ended without success.
Prime Minister Shahbaz Sharif’s recent visits to Saudi Arabia and Qatar raised hopes of significant investments, but market enthusiasm remains muted.
Financial analysts suggest that the State Bank of Pakistan (SBP) could take measures such as maximizing dollar purchases from the local market, restricting imports, stabilizing the exchange rate to boost export revenues, and incentivizing remittances from overseas Pakistanis to improve the economic situation.
In an effort to bolster its reserves, the SBP acquired approximately $1.3 billion from the interbank market in June and July. However, reserves fell to $9.22 billion in July from $9.39 billion in June, highlighting ongoing external debt servicing challenges. The government has successfully secured a new $7 billion Extended Fund Facility from the IMF, receiving the first tranche in September.
Experts note that remittances surged by 39% to $8.8 billion in the first quarter, providing crucial liquidity. Additionally, foreign direct investment inflows increased by 48%, contributing to a more stable financial landscape despite continued restrictions on imports, which reduce dollar expenditure and pressure on the external account.
