“Extremely poor” response to euro bond shows the world remains unconvinced with improved economy narrative, says Asad Umar

Islamabad: The extremely poor response by the global markets to the euro bond offering by Pakistan shows that unfortunately the global investors remain unconvinced of the improved economy narrative that the Govt of Pakistan has been trying to sell, said MNA Asad Umar, head of PTI marketing, media and policy. This is also consistent with the extremely low level of foreign direct investment (FDI) being received by the country which is also a vote of no confidence by the global investors in the economic policies of the current Government. FDI which had peaked at more than 5 billion dollars a year a few years back was less than 1 billion dollars in 2014-15.

The Government in its latest offering last week was only able to sell 500 million dollars at a yield of 8.25% which is the same pricing it got last year when Pakistan had re entered the international bond market after several years gap.  Everything else remaining the same the pricing this time should have been lower as there was no re entry premium to be paid. Hence, the markets were essentially saying that things are getting worse. Umar stated that comparison with recent bond issues by other emerging market countries makes for shocking reading. Just two examples would suffice. Kenya doing its first ever issue last year and raising 1.5 billion dollars at a yield of 6.875%. Similarly Sri Lanka just a few months back raised 650 million dollars at a pricing of 6.125% which is more than 2% lower than what Pakistan is going to pay!

The poor response of the global bond market to the Pakistan bond issuance is the same that the international firms continue to shun Pakistan as an investment destination. They see no fundamental economic reform taking place.  Current account continues to run in deficit despite the record plunge in oil prices which is the single biggest import of Pakistan. Exports continue to decline and the drop in exports is starting to reach alarming proportions.  As mentioned earlier the foreign investment continues at record low levels and domestic private sector investment and credit off take continues to be anemic. The energy sector crises is getting even worse with massive load shedding with continued delay in new projects and non performance of supposedly completed projects , no reduction in line losses and receivables reaching record levels and circular debt back to near record levels despite doubling of prices of electricity for business and consumers.

The scandalous LNG import fiasco has reached a point where the regulator (OGRA) has declared that the imports so far are without lawful authority. Senior executives are being pressurized to resign for refusing to follow illegal orders. Pakistani consumers have been laden with record high indirect taxation and withholding taxes. The crushing of purchasing power of the consumer is also destroying businesses by eroding demand. Whatever strength was left in the domestic businesses has come under severe attack with measures like the patently unfair and draconian 8% minimum tax on the services sector which is more than half of Pakistan’s economy.

Reserves built up entirely on borrowings cannot provide the foundation for sustainable growth and shared prosperity, especially if the borrowing is being done at exorbitantly high levels of interest cost. Umar said it’s about time the government realizes that making tall claims, taking out big advertisements at tax payer’s expense and trying to sell a false narrative without any foundation is not a recipe of economic reform. Until the government stops political interference in institutions and allows them to take decisions based on merit and transparency, stops crushing business under the weight of increased cost of doing business and unjust taxation measures , reduces dependence on indirect taxation to allow the masses to improve their purchasing power and living conditions, creates a just economic order which deals with the extreme inequality in society and starts a systematic campaign against corruption there will be no sustainable economic turnaround.

Pakistan’s ranking in the world economic forum global competitiveness index has dropped from 124th at the end of the Zardari era to 129th this year. The doing business report of the World Bank dropped Pakistan from 107th to 128th. The combination of this eroding competitiveness and the piling of exorbitantly expensive debt is sinking Pakistan further into a debt trap imperiling future generations of the country. PR

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