Pakistan's international bond and sukuk yields decline

In another positive turn for Pakistan, the yields on the country's international bonds and sukuk have seen a notable decline over the past week.

This comes after the announcement of the approval date for the International Monetary Fund's (IMF) $7 billion loan.

The yield on the 10-year bond maturing in December 2025 fell to 11.05% on September 13, down from 11.24% on September 6. Similarly, the yield on the 10-year bond expiring in December 2027 dropped by 37 basis points to 11.54%, and the yield on the 10-year bond maturing in April 2031 decreased by 41 basis points to 11.43%.

An IMF spokesperson recently confirmed that Pakistan has secured the necessary financing assurances from development partners. This matter is set to be discussed at the IMF executive board meeting on September 25.

Additionally, the yield on the 5-year Pakistan Government International Bond declined by 7 basis points to 11.89%, while the yield on the 30-year paper fell by 34 basis points to 11.77%. The yield on Pakistan Global Sukuk also saw a significant drop of 36 basis points to 10.41%.

Despite being classified in country risk class 7, Pakistan is showing signs of economic stabilization, aided by selective policy reliefs. Positive growth is anticipated for 2024-2025, although weak government finances continue to pose risks to this fragile recovery.

Inflation in Pakistan, which had soared to 38% in May 2023, has now slowed to 9.6% as of August 2024. Fuel prices have also decreased, from PKR 288 per liter in May 2023 to PKR 249 per liter currently.

The country's foreign exchange reserves with the central bank have improved significantly, rising from a low of $2.9 billion in February 2023 to $9.5 billion.

It is worth noting that the yield on the 10-year bond had peaked at 57.52% on March 20, 2023, before easing to 18.35% by the end of 2023. Similarly, the yield on the 5-year paper, which had surged to 48.24% on March 20, 2023, fell to 22.92% by the end of 2023. The yield on Pakistan Global Sukuk had also reached a high of 26.41% in March 2023, before dropping to 15.4% by the end of 2023.

According to the federal budget documents, Pakistan plans to raise up to $1 billion through international bonds in the FYH25, while $300 million will be raised through Chinese Panda bond markets.