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Euro Bonds: Govt under fire over reckless borrowing at high rates

(6 October 2015): Joining the ranks of others in criticising the government in its decision to raise $500 million through the Eurobond issue, All Pakistan Business Forum (APBF) President Ibrahim Qureshi has said the high mark-up rate would further plunge the country in expensive debt.

He further said the current government has acquired a loan of about $3.5 billion by launching Eurobonds at excessive mark-up rate of 8.25 on average in just two years.

Qureshi said that the recent move was surprising since the very same government sold $2 billion Eurobonds and Sukuks at 8% and 7% mark-up, respectively, last year, implying the economic managers have acquired loan at more than 2% higher mark-up.

The official said that the government has been exploring possibilities of financing its deficit from multiple sources including IMF, World Bank, domestic borrowing and now it has found the easiest, yet extremely expensive solution of all, Eurobonds.

The extremely low level of foreign direct investment of just $1 billion against $5 billion a few years ago implies that foreign investors are not satisfied with the economic policies of the current government. The APBF president said the government entered into a long-term commitment for short-term relief, which is short-sighted. He said that international loans are more expensive than domestic ones but government was piling up international loans, tilting its loan portfolio towards expensive sources of funds and its implications will be felt in the future.

“The current account continues to run in deficit despite the record plunge in oil prices which was the single biggest import of Pakistan. Exports too, continue to decline and the drop in exports has reached alarming proportions.”

The criticism comes after Kenya, in the country’s first-ever issue last year, raised $1.5 billion at a yield of 6.875%. Similarly, Sri Lanka, just a few months back, raised $650 million at a pricing of 6.125% which is 2.5% lower than Pakistan’s mark-up rate. “The government should work on a sustainable way to build reserves and focus on economic growth and come up with export-boosting policies.”

Qureshi said Pakistan’s external debt servicing reached close to $7 billion in fiscal year 2014, which is almost 35% of the total reserves. The country paid $6.820 billion in debt servicing in FY15, including $5.910 billion as principal amount and $915 million in interest payments. Surprisingly, 47% of whatever the government generates in revenue is going to go towards paying off debt against 44% of the previous year.

Source:  The Express Tribune, October .