On October 7, 2024, global investors are increasingly investing in Pakistan's economy, driven by the recent approval of a $7 billion loan program from the International Monetary Fund (IMF). This development has led to a significant surge in the prices of Pakistan's US dollar-denominated Eurobonds and rupee-based treasury bills, indicating a renewed confidence in the country's financial stability.
The price of Pakistan's global sovereign bonds has risen sharply, with yields dropping dramatically from 20-40% last year to single digits of 9-11%. According to Muhammad Sohail, CEO of Topline Securities, this decline in yields is likely to facilitate the government’s access to more favorable commercial borrowing terms in international markets.
As of October 4, the price of a 10-year Eurobond maturing in September 2025 increased to 98.2 cents on the dollar, while the yield has decreased by over 8 percentage points since the beginning of the year. This trend is mirrored in other bonds, with a total of seven Eurobonds currently in circulation valued at $6.8 billion.
Moreover, foreign investment in rupee-denominated T-bills has also seen a notable increase, with net inflows of $61.65 million in September 2024, bringing the total investment for the first three months of the fiscal year to $179.16 million. The stability of the rupee-dollar exchange rate and higher returns on local bonds compared to developed countries have made these investments particularly appealing.
The IMF program and high-interest rates have improved government financing availability, allowing for early repayment of domestic debt, which in turn has bolstered bank liquidity. While banks in Pakistan are striving to meet a Gross Advances to Deposit Ratio target of 50% by December 2024, many are currently lending at significantly reduced rates to avoid additional taxation.
This positive shift in investor sentiment and economic indicators suggests that Pakistan may be on a path to greater financial stability, with implications for both domestic and international stakeholders.