Dollar-denominated bonds to rope in foreign capital: Umar4 min read

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ISLAMABAD: The Pakistan Tehreek-e-Insaf (PTI) government may issue dollar-denominated Diaspora bonds to generate funds from overseas Pakistanis to overcome the current economic crisis, as it also places bets on China for temporary relief.

Asad Umar, who is likely to be given responsibility to steer the economy out of crisis said on Tuesday said that his out of the box solution to the current external sector challenge was to float dollar-denominated Diaspora and Sukuk bonds to raise funds.

While talking to global media representatives, he vowed to reopen only those China-Pakistan Economic Corridor deals where there was any element of corruption. But he said the PTI government would not renegotiate the CPEC deal.

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“There are very strong sentiments by overseas Pakistanis right now and we want to create debt instruments like Diaspora and Sukuk bonds for them,” said Umar while explaining his options to meet the financing gap, estimated in the range of $10 billion to $11 billion.

He said the idea behind Diaspora bond is to give overseas Pakistanis rates of returns better than they are making right now and at the same time having a sense of national participation that they are helping Pakistan in its reconstruction needs. He said in the longer run, equity instruments will be issued, particularly in the property sector.

“Pakistan’s external sector is far worse than five years ago”, said Umar while explaining the current crisis as PTI is about to form its government at a time when the economy faces one of its severe challenges. “The major part of the discussion with the Chinese ambassador was on the CPEC while we also discussed current account problems Pakistan is facing”, said Umar.

SBP launches bonds

To a question about having another loan from China, Umar said that “In principle, there is assurance, China is a friend of Pakistan and can come to offer but no specifics about what kind of offer will be were discussed.”

In the last two years, China has given $12 billion in loans to Pakistan in shape of CPEC project financing, commercial loans and loans to inflate foreign currency reserves of Pakistan.

Pakistan’s central bank reserves are over $10 billion while Pakistan’s gross external financing needs are estimated between $25 billion to $28 billion for this fiscal year. Umar said that the situation was dire, however, it was not for the first time that Pakistan was facing such a dire situation.

The senior PTI leader said, “It seems like reasonably urgent decision making has to be made to pick among available options to deal with the external sector challenges. By end of September, we should make our decisions”, adding that available options include commercial borrowings, bilateral loans from those countries that have helped Pakistan in past and it could also be IMF.

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“Until we officially sit down with bilateral lenders and commercial lenders, we will not be in a position to make a definitive judgment on which way we are heading”, said Umar.

Meanwhile, he also criticised the past IMF programmes, saying no fundamental reforms took place during these programmes and that’s why the country kept going back to the Fund. “The IMF programmes did not treat the root causes of problems of Pakistan’s economy”, he added.

To a question, Umar said that there was a greater need for transparency in public policymaking. He said that unless some great national secret was involved, you have to make information more transparent. He said that all sovereign deals made with foreign countries including CPEC and Pak-Qatar LNG deals should be made public.

“If any significant economic commitments are made for Pakistan, they must be placed in front of the Parliament”, he added saying PTI was committed to greater transparency in all economic decision making and believed in greater inclusiveness and participation.

He said that the CPEC public sector agreements will be brought before Parliament.

To another question, whether the PTI government will renegotiate CPEC deals, the would-be finance minister said, “Once a sovereign commitment is made by a sovereign and legally elected government, you cannot go back and reopen”. However, he added that if any corruption is found in any of the deals, then it will be in the national interests of both China and Pakistan to deal with that.

While comparing the situation with 2013, Umar said that at the domestic front very little has changed except public debt-to-GDP ratio that has been further deteriorated to nearly 74% of the GDP from 63%. The only thing that was positive on the domestic front was that the economic growth rate has relatively remained higher.

The real disaster that has taken place in the past five years is that when you ran into current account deficit, the trade deficit was $18 billion and external debt was about $60 billion. Now the trade deficit is about $37 billion and the external debt was expected to be close to $95 billion, he concluded.

(This news/article originally appeared in The Express Tribune on August 8th, 2018)

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