ISLAMABAD (Reuters) - Pakistan plans to raise between $500 million to $1 billion in debt via an Islamic sukuk bond or a Eurobond later this year, two government sources told Reuters, amid growing concerns about the country’s dwindling foreign currency reserves.
In the annual budget announced in May, the government said it would raise $1 billion via a sukuk bond in the 2017/2018 fiscal year (July-June). Pakistan in October 2016 raised $1 billion via an oversubscribed U.S. dollar sukuk.
Two officials at the Finance Division within the finance ministry said Pakistan has began work on the debt issue, including talks with potential advisers, and suggested it was possible the money may be raised via a Eurobond.
“We have just started work to firm up this transaction but its size had not yet been finalised,” one senior finance ministry official told Reuters late on Tuesday, adding that it would depend upon the appetite and condition of market.
A second finance ministry official confirmed plans to raise debt, probably around the start of November. Pakistan’s 2016 sukuk had an interest rate of 5.5 percent, while a 2015 Eurobond worth $500 million had a coupon rate of 8.25 percent.
Pakistan’s $300 billion economy has made vast strides since a balance of payments crisis in 2013 forced Islamabad to seek help from the International Monetary Fund (IMF), with growth in 2016/2017 hitting 5.3 percent, its fastest pace in a decade.
But the IMF has recently warned that the macro-economic gains made during 2013-2016 have “begun to erode” and pose a risk to economic outlook.
The fund has singled out Pakistan’s ballooning current account deficit as a source of concern. The deficit hit $12.1 billion in 2016/2017, widening 148 percent on the previous year.
The balance of payments pressure are in large part due to import of machinery and other Chinese goods on the back of China’s $57 billion infrastructure investment as part of the Beijing-funded Belt and Road initiative.
Foreign currency reserves held by the central bank have fallen from $18.9 billion in October 2016 to $14.3 billion in mid-August this year.
Writing by Drazen Jorgic; Editing by Simon Cameron-Moore