KARACHI: State Bank of Pakistan has clarified the government issuance of a 10-year US$500 million Eurobond in the international market at a cost of 8.25 percent which has been widely criticised in the media mostly because of its being expensive in comparison with similar issues in the past.
‘ Despite the difficulties of timing, the issuance of the Eurobond was important for many reasons. While it may be considered as relatively expensive comparing it with the past issues, it has many associated benefits,’ said Chief Spokesperson SBP Abid Qamar. ‘Foremost, it is helpful to maintain the current year’s budgeted cash flows and meeting many of the performance criteria set under the IMF program. The country is benefitting from a smooth sailing of the program as many of the other bilateral and multilateral flows are contingent upon the success of the program as well.’
He said another important contribution of the bond issuance is through maintenance of foreign exchange reserves of the country. The foreign exchange reserves of the State Bank are currently well above the minimum threshold of three months of imports, which is generally considered as adequate from external sector sustainability view point.
The spokesperson said continuing with such trend was important since availability of adequate reserves supported in attracting both debt and non-debt inflows of foreign exchange. Admittedly, borrowing from the external sector had its limitations due to a rise in external debt as a percent of GDP; but, currently Pakistan’s external debt to GDP ratio was well below when compared with its peer countries.
With regards to the timing of bond issuance, there is a view in the media that a delay in the issuance of bond would have been more appropriate as international investors appear to be jittery of current global economic developments. In SBP view, such a delay would have only added to the cost of raising the bond.
