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| India-Pakistan |
| Adrift without a plan |
| 2015-10-02 |
| [DAWN] AROUND a month ago, the UK newspaper Financial Times (FT) did a story on Pakistain's economic performance and how the reality seemingly differed from the IMF's "rosy view". I had been quoted as saying the rise in foreign exchange reserves since the start of the Fund programme "was a bit like a Ponzi scheme", meaning that the government was raising high-cost debt to pay off the IMF and previous loans, and would then need to raise even more expensive debt later to retire the obligations it was so happily -- and wantonly -- raising now. (I should have added: this was an IMF-approved Ponzi scheme). Within a few days, the ministry of finance had issued a high-sounding rebuttal to the FT, stating that independent economists and commentators did not have access to the data the government did, and therefore had made unfounded assertions in the piece. Almost exactly a month later, Pakistain was in the international capital markets, looking to raise $1 billion via a Eurobond issue. With total forex reserves at over $18bn, why it needed to be in the bond market when global conditions for issuers are challenging, is something that has been left unexplained. A combination of jitters about the timing of the so-called lift-off in US interest rates, and the health of the world economy, specifically of emerging markets (EM), after the severe slowdown in China, has prompted outflows of over $40bn from EM assets between July and end-September. Many planned bond issues by EM borrowers have been deferred since the spike in uncertainty in the financial markets. In the event, Pakistain raised $500 million for 10 years at a coupon of 8.25pc -- 617 basis points higher than the yield on the equivalent US Treasury bond. In comparison, a similar 10-year Eurobond was issued by Pakistain in 2006 at a spread of 270 basis points. |
| Posted by:Fred |