It is not an appropriate time for Pakistan to issue US$ denominated Eurobonds

There are reports that Pakistan is getting ready to issue US$ denominated Eurobonds of more than US$2 billion over the next few days. The settlement date for the issue is likely to be 6th April 2021. However, some analysts are of the view that it is not an appropriate time to go for this adventure.

Initial indications suggest that 5-year bond’s bids to be between 6.0-6.5%, 10-year bond’s between 7.2-7.7%. Interestingly, Pakistan is also trying to sell Eurobonds having a tenor of 30 years at a yield of close to 8.5-9.0%.

They say, currently US$ exchange parity is on the slide and further erosion in value is anticipated as Ramadan gets closer. They anticipate an influx of more than US$2.5 billion over the next 30 days, which may push the parity below Rs148.

They go to the extent of saying that Pakistan should capitalize this opportunity, as no interest payment will be required. The want State Bank of Pakistan (SBP) to work out a band, in which parity should be allowed to move. The central bank should start buying when parity goes below the threshold point or start selling which parity crosses upper limit.

They believe the central bank has ample supply of local currency in its coffer and in the worst scenario can print more. In this scenario the biggest collateral will of the added foreign exchange reserves.

Currently, Pakistan’s US$ denominated bond yields around 5.9% (having maturity in 2027) in the secondary market. The average yield over the last 3-months for the same is around 5.8%.

We believe this re-entry of Pakistan in international capital markets will support investors’ sentiments. Regardless of the yield, the size of these bonds will provide much needed support to Pakistan foreign exchange reserves that are currently adequate for 3 months of import only.

S&P and Moody’s presently rate Pakistan as B- with stable outlook and B3 with stable outlook.

Recently Egypt having S&P rating of B and Moody’s rating of B2 (one notch above Pakistan), raised US$3.75 billion. Egypt sold 5-year worth US$750 million at 3.875%, 10-year bonds worth at US$1.5 billion at 5.875% and 40-year bonds worth US$1.5 billion at 7.5%.

Pakistan Rupee (PKR) vis-à-vis US$ has climbed to a 22-month high, gaining around 3% during the last month and 9% from its bottom touched on 20th July 2020.

Pakistan floated its first bond in international market during 1994 and then in 1997.

The first bond was launched on Dec 22, 1994 at 11.5% with amount raised being US$150 million. This was followed by US$160 million and US$300 million bond in Feb-May, 1997 at 6% and Libor + 395bps, respectively.

Later due to international restriction after nuclear testing Pakistan was unable to tap international market. However, Pakistan reverted back to international market in 2004 as better macroeconomic indicators resulted in improved ratings.

In FY05, Pakistan issued 5-year Eurobond and raised US$500 million at rate of 6.75%.

In FY06, Pakistan issued US$600mn in 5-year Sukuk issuance at rental rate of 6M LIBOR plus 220bps.

In FY07, Pakistan issued total US$800 million by issuing two Eurobonds of worth US$500 million (7.125%, 10 year) and US$300 million (7.875%, 30 year) each.

After gap of 7 years, Pakistan mobilized US$2 billion in April 2014 by issuing 5 and 10 year bonds at 7.25% and 8.25%, respectively.

In November 2014, Pakistan issued Sukuk of US$1 billion (already matured in December 2019) at 6.75%.

In September 2015, Pakistan issued 5-year Eurobond of US$500 million at 8.25%. In Oct-2016, Pakistan issued 5 year Sukuk of US$1 billion at a lowest rate of 5.5%.

In last issue of November 2017, Pakistan raised US$2.5 billion by offering 5-year Sukuk of US$1 billion and 10-year Eurobond of US$1.5 billion at 5.625% and 6.875%, respectively. 

Bangladesh: A role model for developing countries

Poverty, hunger, natural disasters, famine, crumbling infrastructure, political turmoil, and coups in the first decade after the creation of Bangladesh did not paint a picture that would radiate hope. Today, as the country celebrates Golden Jubilee of Independence, Bangladesh has not only stood on its own feet, but has also become a role model for development.

In the beginning, Bangladesh was branded as a basket case. The naysayers believed that country would have to be fed by the international community as it was staring at failure with no mineral resources, high population growth, food shortage, and negligible exports.

The situation was so bad that in 1976, Just Faaland, resident representative of the World Bank in Bangladesh (1972-1974), and Prof Jack R Parkinson, senior economist to the World Bank Mission summed up Bangladesh’s trauma in the phrase “test case for development”. They argued, “If development could be made successful in Bangladesh, there can be little doubt that it could be made to succeed anywhere else.”

Bangladesh turnaround story is worth reading. The country brought down the population growth rate from over 3 percent to a little over one percent. The poverty rate had fallen to less than 20 percent before the pandemic from as high as 82 percent in the 1970s.

The country struggling to feed its 75 million people five decades ago is self-sufficient in food production even though the population has more than doubled.

Aid-dependence significantly declined from 14 percent of the GDP in the 70s to less than 1.5 percent now.

Life expectancy is 72 years, much higher than neighbouring Pakistan and India.

People can now send their children to schools and access primary health care.

With policy support of the government, Bangladesh has become a key supplier of readymade garments worldwide. Major brands of the world have their products made here. This industry alone brings in about US$34 billion a year and employs millions, women being the largest workforce in the industry.

Another key driver of the economy is manpower export. Around 10 million Bangladeshis are working abroad and earning foreign exchange for the country and bringing comfort to near and dear.

They send in around US$15 billion every year and that amount is ever increasing. This allowed Bangladesh to have a huge foreign currency reserve.

More than ten million people took shelter in India in 1971. Now Bangladesh, with its economic might, is able to open its doors to nearly a million Rohingyas escaping persecution in Myanmar.

Bangladesh has met all three conditions for graduating from the grouping of the least-developed countries twice. The United Nations Committee for Development Policy has already recommended the country’s graduation in 2026.

Bangladesh’s economy was one of the few economies that posted positive growth in 2020 when growth went south for most because of the pandemic.

The secret of Bangladesh’s success was its education and girls, as American journalist and political commentator Nicholas Kristof put it. “Bangladesh invested in its most underutilized assets — its poor, with a focus on the most marginalized and least productive, because that’s where the highest returns would be.”

Ahsan Mansur, Executive Director of the Policy Research Institute of Bangladesh, said the central bank did not have a machine to print money after independence. The geopolitical situation was not in favour of Bangladesh as the new country was aligned with the left-leaning bloc.

Since the severe famine of 1974, Bangladesh has not faced any major food crisis, greatly aided by the green revolution that was sweeping across the world at the time. “This has been a major achievement,” he said.

A major paradigm shift was moving away from a nationalized economic policy stance perceived in the 1970s to a private-sector-led economy with liberalization, deregulation and denationalization in the 80s and 90s, according to Manzur Hossain, Research Director of the Bangladesh Institute of Development Studies (BIDS).

“Bangladesh has disproved all predictions and progressed at a good pace,” said AB Mirza Azizul Islam, a former bureaucrat and Finance Adviser of the government.

Muhammad Abdul Mazid, a former Chairman of the National Board of Revenue, said all governments took note of the importance of the agriculture sector to feed the growing population amid shrinking land. The sector gave the much-needed resilience to the economy.

“Our people are resilient and proactive in driving the economy forward. And they have been supported by appropriate policies,” said Prof Shamsul Alam, member of the General Economics Division under the Planning Commission.

Zaid Bakht, a former Research Director of the BIDS, credited public expenditure and investment for the surprising turnaround. “All countries do this, but ours was more focused and intense. Governments have given emphasis on rural infrastructural development. This has a tremendous impact on the economy.” There has been economic diversification. Cropping intensity has been increased. Non-farm activities have gone up, he added.

He said microcredit organizations and NGOs have worked in empowering women. Governments set up roads and bridges, kept the labour market flexible, gave mobility and education to women and girls, and made some improvements in the health sector. “All these created a virtuous cycle,” Bakht said.

Zahid Hussain, a former lead economist of the World Bank’s Dhaka Office, gave credit to the steady economic growth, social policies aimed at population control, rural roads, education and electrification, primary education, female education, local low-cost health solutions for immunization and communicable diseases, access to finance through microcredit, last-mile service delivery by NGOs, and demographic dividend for the turnaround of the country.

The latest testimony to Bangladesh’s astounding achievement came when Nicholas Kristof advised US President Joe Biden to look to Bangladesh to find the answer to how to bring down the rate of poor children.

Courtesy: The Daily Star

Traffic in Suez Canal resumes after stranded ship refloated

Shipping traffic through Egypt’s Suez Canal resumed on Monday after a giant container ship which had been blocking the busy waterway for almost a week was refloated, the canal authority said. Live footage on a local television station showed the ship surrounded by tug boats moving slowly in the center of the canal. The station, ExtraNews, said the ship was moving at a speed of 1.5 knots.

The 400-metre (430-yard) long Ever Given became jammed diagonally across a southern section of the canal in high winds early last Tuesday, halting traffic on the shortest shipping route between Europe and Asia.

 “Admiral Osama Rabie, the Chairman of the Suez Canal Authority (SCA), announces the resumption of maritime traffic in the Suez Canal after the Authority successfully rescues and floats the giant Panamanian container ship EVER GIVEN,” a statement from the SCA said.

“She’s free,” an official involved in the salvage operation said.

After dredging and excavation work over the weekend, rescue workers from the SCA and a team from Dutch firm Smit Salvage had succeeded in partially refloating the ship earlier on Monday using tug boats, two marine and shipping sources said.

Evergreen Line, which is leasing the Ever Given, confirmed the ship had been successfully refloated and said it would be repositioned and inspected for seaworthiness.

Ship stranded in Suez Canal re-floats

The stranded container ship blocking the Suez Canal for almost a week was re-floated on Monday and is currently being secured, Inchcape Shipping Services said, raising expectations the vital waterway will soon be reopened.

The ship was successfully re-floated at 4.30 am local time and was being secured at the moment, Inchcape, a global provider of marine services said on Twitter.

Ship-tracking service VesselFinder has changed the ship’s status to under way on its website.

The 400-metre (430-yard) long Ever Given was jammed diagonally across a southern section of the canal in high winds early on Tuesday, halting shipping traffic on the shortest shipping route between Europe and Asia.

At least 369 vessels were waiting to transit the canal, including dozens of container ships, bulk carriers, oil tankers and liquefied natural gas (LNG) or liquefied petroleum gas (LPG) vessels, SCA Chairman Osama Rabie told Egypt’s Extra News on Sunday.

Egypt’s Leth Agencies tweeted the ship had been partially refloated, pending official confirmation from the Suez Canal Authority.

The Suez Canal Authority had earlier said in a statement that tugging operations to free the ship had resumed. The Suez Canal salvage teams intensified excavation and dredging on Sunday and were hoping a high tide would help them dislodge it.

IMF Completes Combined Review of EFF for Pakistan

Reportedly, Executive Board of International Monetary Fund (IMF) has completed combined second through fifth reviews of the Extended Arrangement under the Extended Fund Facility (EFF) for Pakistan, allowing for an immediate release of US$500 million for budget support, taking total budgetary support under the arrangement to about US$2 billion.

Program performance has remained satisfactory notwithstanding the unprecedented challenges of the COVID-19 shock, and the authorities’ policies have been critical in supporting the economy and saving lives and livelihoods.

Pakistani authorities have remained committed to ambitious policy actions and structural reforms to strengthen economic resilience, advance sustainable growth, and achieve economic reform program medium-term objectives.

Pakistan’s 39-month EFF arrangement was approved by the Executive Board on 3rd July 3, 2019 for about US$6 billion at the time of approval of the arrangement, or 210% of quota. The program aims to support Pakistan’s policies to help the economy and save lives and livelihoods amid the still unfolding COVID-19 pandemic, ensure macroeconomic and debt sustainability, and advance structural reforms to lay the foundations for strong, job-rich, and long-lasting growth that benefits all Pakistanis.

Following the Executive Board discussion on Pakistan, Ms. Antoinette Sayeh, Deputy Managing Director and Acting Chair, issued the following statement:

The Pakistani authorities have continued to make satisfactory progress under the Fund-supported program, which has been an important policy anchor during an unprecedented period. While the COVID-19 pandemic continues to pose challenges, the authorities’ policies have been critical in supporting the economy and saving lives and livelihoods. The authorities have also continued to advance their reform agenda in key areas, including on consolidating central bank autonomy, reforming corporate taxation, bolstering management of state-owned enterprises, and improving cost recovery and regulation in the power sector.

Reflecting the challenges from the unfolding pandemic and the authorities’ commitment to the medium-term objectives under the EFF, the policy mix has been recalibrated to strike an appropriate balance between supporting the economy, ensuring debt sustainability, and advancing structural reforms while maintaining social cohesion. Strong ownership and steadfast reform implementation remain crucial in light of unusually high uncertainty and risks.

Fiscal performance in the first half of FY21 was prudent, providing targeted support and maintaining stability. Going forward, further sustained efforts, including broadening the revenue base carefully managing spending and securing provincial contributions will help achieve a lasting improvement in public finances and place debt on a downward path. Reaching the FY22 fiscal targets rests on the reform of both general sales and personal income taxation. Protecting social spending and boosting social safety nets remain vital to mitigate social costs and garner broad support for reform.

The current monetary stance is appropriate and supports the nascent recovery. Entrenching stable and low inflation requires a data-driven approach for future policy rate actions, further supported by strengthening of the State Bank of Pakistan’s autonomy and governance. The market-determined exchange rate remains essential to absorb external shocks and rebuild reserve buffers.

Recent measures have helped contain the accumulation of new arrears in the energy sector. Vigorously following through with the updated IFI-supported circular debt management plan and enactment of the National Electric Power Regulatory Authority Act amendments would help restore financial viability through management improvements, cost reductions, regular tariff adjustments, and better targeting of subsidies.

Despite recent improvements, further efforts to remove structural impediments will strengthen economic productivity, confidence, and private sector investment. These include measures to: 1) bolster the governance, transparency, and efficiency of the vast SOE sector; 2) boost the business environment and job creation; and 3) foster governance and strengthen the effectiveness of anti-corruption institutions. Also, completing the much-advanced action plan on AML/CFT is essential.

Can Pakistan and Bangladesh be Friends ever?

On 14th August 2020, Pakistan’s Independence Day, the country’s high commissioner in Dhaka, Imran Ahmed Siddiqui, lauded the role that Bengalis played in the creation of Pakistan in 1947. 

That was preceded by Pakistani foreign office spokesperson Aisha Farooqui saying that Islamabad was now actively working on mending relations with Dhaka. Before that, the two premiers, Imran Khan and Sheikh Hasina, held on 22nd July 2020 telephone conversation.

The year 2020 provided a rare opportunity to Islamabad and Dhaka to talk about their own fractured past. This was noticed by New Delhi with concern. Indian Foreign Secretary Harsh V. Shringla rushed to meet Hasina and Bangladesh Foreign Minister A.K. Abdul Momen.

Pakistan’s recent advances toward Bangladesh have overlapped with growing disputes between New Delhi and Dhaka, largely centering around the growing anti-Muslim tilt of the ruling Bharatiya Janata Party (BJP) in India. In the recent past, differences over the Rohingya refugee crisis, the Citizenship Amendment Act, and the construction of Ram Mandir in Ayodha have sparked a diverse array of skepticism from Dhaka.

China and Turkey are backing Islamabad’s Kashmir narrative, much of Pakistan’s recent diplomatic engagement with Bangladesh has been with regard to this fast-growing alliance. With China more interested in Kashmir because of its growing rivalry with India, and its bid to involve itself in conflicts as the global superpower, Dhaka’s interest in being a part of the China-Pakistan-Turkey nexus could also be piqued by Beijing’s investments in Bangladesh.

Under the Turkey-led Muslim bloc, both Pakistan and Bangladesh can get more prominence as compared to what they have under the Gulf states, who have not only failed to provide support for Kashmir, but have actively enhanced their defense and energy cooperation with India, and even Israel.

The UAE-Israel deal epitomizes the rapid splintering into a new cold war reality, with the Gulf states firmly in the US-Saudi camp. This opened the possibility for South Asian Muslim countries to back the potential China-Turkey bloc. Pakistan’s efforts to persuade Bangladesh, backed by China and Turkey, are rooted in global, and regional, realignments more so than any bilateral efforts to reconcile with a tumultuous past.

While Pakistan and Bangladesh might find common interests in coexisting in the same bloc, for the two to actually become friends requires an honest discussion on what transpired in 1971 – and the events leading up to it.

Where China and Turkey might be providing the opportunity for Pakistan to sit with Bangladesh again, it must do so with sincerity and self-reflection. That will not only help Islamabad formulate progressive bilateral ties, it might also ring a timely reminder to undo many of the same errors of the past.

Can sustainable peace be established between India and Pakistan?

It appears that efforts are being made to reduce hostility between Pakistan and India, the two atomic powers of South Asia. However, most of the actions are taking place behind the scene, though scanty details are being shared with public.

The Pakistan Day message received by Pakistani Prime Minister, Imran Khan from his Indian counterpart Narendra Modi has made headlines, but it hardly reflects any tangible goodwill gesture.

After years of hostility cordiality will be difficult to achieve. Yet the first, careful steps have been taken, and if things proceed without any glitch tangible progress in the peace process can be achieved.

The first sign that things were changing for the better came in the shape of the LoC ceasefire announced last month by the two countries. It was followed up by statements from Khan and the army chief calling for better relations with India.

Pakistani experts were also in India earlier this week after a long gap to discuss the sharing of Indus waters. Relations had of course hit rock bottom after India unilaterally annulled held Kashmir’s special status in its constitution in 2019.

One can hear the eco that a Gulf state that enjoys good relations with both sides is playing the role of peacemaker. Biden administration is also sending certain signals to Islamabad and New Delhi. This suggests that the two atomic powers are being pressurized to ease the situation.

It has been witnessed several times in the past; both countries were tantalizingly close to making peace, only for the process to be abandoned due to spoilers, this time things may not be different.

It is believed that with seriousness of purpose, everything standing in the way of peace — including Kashmir — can be resolved. The history spread over more than 70 decades, proves this is only a wishful thinking.

My lines could be best understood when one reads what Chief of Army Staff General Qamar Javed Bajwa has said. He said pointblank that lasting peace in the sub-continent will remain elusive until the resolution of the Kashmir issue. He also stressed that it was time for India and Pakistan to "bury the past and move forward".

Let me say that both the countries have remained hostage to the disputes and issues. The Kashmir issue is obviously at the heart of this. It is important to understand that without the resolution of Kashmir dispute through peaceful means, process of rapprochement will remain susceptible to derailment.